End of super-deduction allowance threatens investment, warns GT

The end of the super-deduction capital allowance at the end of this month could threaten business investment going forward, Grant Thornton has warned.

Research from its latest Business Outlook Tracker found that since its introduction in April 2021, it had boosted business investment in mid-sized businesses across the UK.

Over two thirds (67%) of the 600 mid-sized business respondents to the tracker’s survey said they made use of the super-deduction, which was introduced to offer internationally competitive tax incentives to companies investing in qualifying new plant and machinery assets.

Of the businesses who had made use of the super-deduction, the majority (79%) reported that the relief had encouraged their business to invest more than they would have otherwise.

As the cut-off at the end of March approaches, Grant Thornton found that mid-market investment expectations for plant and machinery assets have “already faltered”, with 20% of respondents planning to reduce investment in this area over the next six months.

Jeremy Chapman, head of Capital Allowances at Grant Thornton UK LLP, said: “The super-deduction was introduced as part of the plan to kick start the economy as we emerged from the pandemic. The generous first year allowance became the biggest tax incentive ever introduced on qualifying assets and, as our research shows, it has helped to boost business investment levels across the mid-market over the past 18 months.

“But as we move towards the end of the tax relief’s window, and despite a consultation last year on the impact of it ending and what comes next, there is nothing notable on the horizon to continue incentivising businesses to invest significantly in new plant and machinery.” 

He added: “The removal of the allowance will result in the UK falling behind the OECD’s average for net present value for capital allowances for machinery, potentially dropping from first back to 30th out of 38 OECD countries.

“The need for certainty on what future support will be available is critical to allow businesses to plan, effectively and confidently. While it’s possible that any potential replacement incentives introduced to plug the gap will give a better overall outcome for businesses, it is unlikely. Whatever form any new incentives take, they need to be simple to implement, clear on timescales and meaningful enough, to continue to encourage businesses to invest.”