The TAX SUPER-DEDUCTION
AN INCENTIVE TO INVEST
Pay less tax whilst growing your business today with tomorrow’s money
what is the tax super-deduction?
To help business investment bounce back to pre-pandemic levels, the Government is incentivising the purchase of new assets for business. The tax super-deduction of 130% until 31 March 2023 is a new Capital Allowance scheme, meaning that for every pound a company invests, their taxes can be cut by up to 25p.
The super-deduction measure was announced in the Budget, and started on 1 April 2021. For expenditure incurred from then until 31 March 2023, companies can claim 130% capital allowances on most new plant and machinery that usually qualifies for 18% main rate writing down allowance.
This is only available to limited companies for new equipment. However the Annual Investment Allowance is still available until 31 December 2021 for other types of business and used equipment. You can find more information and examples on the Government Super Deduction Factsheet.
this sounds like good news, but what does this really mean?
Purchasing a new asset to help grow your business for £10,000.00 would reduce your taxable profit by £13,000.00 giving you a tax saving of £2,470.00.
An opportunity to reduce taxes, is something that always calls for celebration, but it is likely that your cash could work harder for you in other ways, rather than being tied up in assets.
So here’s the even better news…
You can still qualify for the super-deduction if you use a finance agreement, as long as you opt for a hire purchase agreement and not a lease. Some of the key factors of a hire purchase agreement are:
- All of the VAT on the cost is payable up front with the deposit
- An option to purchase fee (typically £150.00 plus VAT) will be collected with the last payment you make
- Capital allowance on the equipment cost (as if you had paid cash), and full tax relief on the interest payable
- The asset will still be detailed on the balance sheet as if you had paid cash
what is a capital allowance?
The name given to the ability for taxpayers to write of the cost of certain capital assets against taxable income. There are different types of capital allowances. These do not affect your profit and loss account which just reflects depreciation. This is added back in before capital allowances are deducted and the tax computation is done.
is my business eligible?
If you are a limited company buying a new asset, yes!
The super-deduction is available up to any amount invested for all limited companies, and hire purchase facilities are available for all non-regulated customers.
You aren’t limited on the amount you can spend to qualify for the super-deduction as there is no cap.
If the amount of the super deduction is more than your profit in the financial year then you may be able to claim for a tax refund from previous years.
what if I'm not eligible for the super-deduction?
There are different types of capital allowances. If you are a sole trader or partnership, or buying used equipment, and aren’t eligible for the super-deduction, then one of the following capital allowances may be suitable.
If you have exceeded the annual investment allowance, we can explore other types of finance agreement which may be more appropriate.
- valid until 31 March 2023
- no limit on amount spent
- new assets only excluding cars
annual investment allowance
- valid until 31 December 2021
- capped at £1m
- all assets except cars
standard capital allowance
- standard allowance
- no limits
- main rate plant and machinery
this is the reduction in your next tax bill for each type based on an asset costing £100,000
(assumes a tax rate of 19%)
annual investment allowance
As the super-deduction came into force from 1 April 2021, any new qualifying asset purchased by a limited company from now until 31 March 2023, will qualify for the super-deduction.
Whilst you gain the same tax benefits through outright or hire purchase, all the usual benefits of finance still apply!
So for any asset you are considering, give us a call and we can provide you with a bespoke illustration, that you can then share in house or with your accountant to help justify the purchasing decision.
To have a chat about your individual requirements with no obligation just call, email or request a call back.