What is the super-deduction?
For two years from 1 April 2021, any investments a business makes in main rate plant and machinery will qualify for a 130% capital allowance deduction. But what does this mean for you, how can you utilise it and what are the benefits for your business?
Why was it introduced?
To put it simply, the super-deduction tax break was introduced to drive businesses to invest, boost the UK’s economic recovery from the COVID-19 pandemic, and to help boost the country’s productivity levels. It allows businesses not only to make additional investments, but also to bring planned investments forward.
How does it work?
It’s important to note that the super-deduction is only a temporary measure – it expires on 31 March 2023. So businesses only have six months left to utilise the scheme. But it is fairly simple to examine the benefits. Let’s say your business spends £100,000 on main rate equipment and you’re eligible. When you come to calculate your taxable profits, your corporate tax deduction will be £130,000, which is 130% of your initial investment. Deducting £130,000 from your taxable profits will reduce your tax liability by up to 19% of that – which is £24,700. And that is how much your corporation tax will be reduced by if you qualify.
Who qualifies?
Unfortunately, this doesn’t apply to partnerships, sole traders or individuals. You need to have a company to get these valuable reliefs.
What equipment qualifies?
Not all business investments will qualify for the new allowances, but the qualifying groups are relatively encompassing. The super-deduction includes all new plant and machinery, and can include computer equipment and servers, tractor units, lorries, vans, ladders, drills, cranes, office chairs and desks, electric vehicle charge points, refrigeration units and compressors.
Can you claim the super-deduction if you utilise a finance agreement?
To put it simply, yes you can. In a scenario where a company makes payments in order to acquire an asset, and where there is an expectation that legal ownership at some point passes to the purchaser then the super-deduction is available. But it’s always best to check the detail and remember there is a clawback of the tax saving if you dispose of the asset prior to 1 April 2023.
How can you take advantage of the super-deduction?
Get in touch with one of our Account Managers by clicking the ‘Apply Now’ button at the top right of your screen – they’re industry leading experts with years’ of experience financing assets. They’ll be able to talk you through the super-deduction in more detail – but with only six months left to utilise this scheme, it’s always best to act quickly.