But why was the super-deduction introduced? How can it benefit your business? And what tax benefits would be made available to you if you used it?
Have no fear! The super-deduction article is here. We sat down Chris Roberts, Director of Capital Allowance Review Service to find out more.
What actually is the super deduction?
Introduced in March 2021 as a way to encourage business investment off the back of the post-pandemic economy and stimulate spending on capital assets, the super-deduction allows businesses to claim 130% capital allowances on qualifying plant and machinery investments, if they are purchased between 1 April 2021 and 31 March 2023.
The super-deduction applies to plant and machinery investments which would ordinarily qualify for the 18% main rate pool.
A secondary measure was also introduced alongside the super-deduction which was the first-year allowance of 50%. This applies to plant and machinery investments which would ordinarily qualify for the 6% special rate pool.
Main Pool? Special Pool? Which one do I jump in to?
This all depends on the plant and machinery you’re looking to purchase for your business.
The main rate pool, which enjoys the super-deduction relief, includes things like:
- Computer Equipment – including monitors, servers etc.
- Office Equipment – including chairs, desks etc.
- Vehicles – including vans, lorries, diggers and excavators.
Whereas the special rate pool, which instead has the First-Year Allowance relief, includes things like:
- Solar Panels
- Lifts and Escalators
- Electrical Systems
- Charging Points for Electric Vehicles.
This isn’t an exhaustive list though and you can find more information on the Government website.
A few of those are on my shopping list – can I make use of it?
If you pay corporation tax and you plan on spending money on qualifying assets in the next 6 months, then you do have the power to take advantage of this tax relief.
It’s also worth noting that if you do plan on purchasing these assets, the super-deduction and first-year allowance only relates to new and not used or second-hand assets.
Sole traders and partnerships needn’t feel left out though, whilst you’re unable to take advantage of the super-deduction, you can instead take advantage of the Annual Investment Allowance which is currently set as £1million and has the same deadline as the super-deduction, the end of March 2023.
Oh wow – so what would the tax savings be?
Tax savings – assemble!
Super-deduction
Well, this is where it gets interesting, let’s say you’re a company who has decided their office needs an overhaul and you want to purchase £500,000 worth of qualifying assets before the deadline.
Purchasing these assets would mean that the company could deduct £650,000 (the 130% of the initial investment) from its taxable profits.
In turn, as this has been removed from the taxable profit it would save the company £123,500 on its corporation bill.
First-year allowance
Alternatively, maybe you’re a company which is looking to invest in electric car charging points for its business. The total costs, once we’ve removed all the grants that could be applicable, is £5,000.
This would mean you can deduct £5,000 from your taxable profits and enjoy a corporation tax saving of £950.
You might now be able to see where it gets its super name!
That’s great! Can I just wait until this time next year?
Like all great things, it must come to an end and the deadline of the 31 March 2023 for purchases of assets is still in place at the time of writing. The IOD’s request might be heard and it may be extended but for now we would advise taking advantage whilst you still can.
Using the examples above, you can see what a difference both the super deduction and first-year allowance can have.
The super-deduction saving of £123,500 would likely be £95,000 after the deadline.
So, how can we help?
At DJH Mitten Clarke we’ve supported a number of our clients’ work through the potential savings of super-deductions, so if this sounds like something you’d like to explore, we’d love to help you through the process too.
