One of the key announcements from the Chancellor's Budget on 3rd March was the introduction of a new ‘Super Deduction’ for companies.
So what exactly is this new tax break, who does it apply to and how can you take advantage of it?
What is the Super Deduction?
This is a new first year allowance announced by the Chancellor at the Budget on 3rd March 2021. This new deduction comes into effect from 1st April 2021, and allows companies investing in new (note new – not second hand!) plant and machinery assets to get a 130% first year allowance. This means you could reduce your tax bill by up to 25% of any spend on qualifying equipment. Under current rules, you would get either a 100% deduction, or an 18% allowance per annum.
Here's an illustration:
(pre 1 April 2021)
(1 April 2021 - 31 March 2023)
|New 25% tax rate
(1 April 2023 onwards)
|Investment in equipment: £100,000||100% deduction*||130% deduction||100% deduction*|
|Corporation tax saving||@ 19% = £19,000||@ 19% = £24,700||@ 25% = £25,000|
* 100% deduction up to £1m annual limit under AIA available until 31 December 2021. May revert to a lower annual limit in future years
So what qualifies?
Most new plant and equipment will qualify for the Super Deduction, here’s some examples:
- Commercial vehicles (i.e. vans), but not cars
- Computer equipment and servers
- Warehouse equipment
- Office furniture
- Ladders, drills and cranes
- And more!
Who is it for?
The Super Deduction is only for those who come under the charge to corporation tax, so unfortunately partnerships, LLPs or sole traders can’t take advantage of the Super Deduction.
How can you take advantage of it?
The Super Deduction will need to be claimed in your company tax return, so make sure your accountant knows about it, and claims the Super Deduction for any qualifying purchases from 1st April onwards.
Is there an annual limit on ‘Super Deduction’ expenditure?
Unlike the Annual Investment Allowance, which has an annual limit (currently £1m until 31/12/21), there is no annual limit on the level of ‘Super Deduction’ expenditure, which makes this a very useful tax deduction for businesses investing in significant plant and equipment.
Can you finance ‘Super Deduction’ expenditure on Hire Purchase?
New equipment purchased on Hire Purchase can qualify for the Super Deduction, subject to some conditions.
Anything to watch out for?
This is a first year allowance, and is subject to some exclusions – make sure your accountant checks on these before going ahead with any significant expenditure.
The other key point to be clear on is that the Super Deduction doesn’t apply to any contracts entered into prior to 3rd March, even if the equipment doesn’t arrive until after 1st April.
If you have any questions on the new Super Deduction, please don’t hesitate to get in touch with us – 024 7667 3160 or firstname.lastname@example.org