Reminder on Super Deduction Tax, April 21-23
Author: LHP Associate & Tax Specialist Rachael Ball (FCCA)
I’ve had a few conversations this week with people about the new super deduction tax relief that is available on new qualifying plant and machinery purchases from 1 April 2021, so I thought it would be good to remind business owners of the opportunity available to limited companies.
This tax relief was announced alongside other tax changes such as the National Insurance hike in the Spring 2021 Budget. The next budget date is 23 March 2022 so we’ll have to wait and see what new measures (if any!) are put in place in this announcement.
The AIA allowance remains at £1,000,000 for limited companies, partnerships and sole traders and is available to be used against the second-hand assets purchased by a company. The AIA allowance is due to revert to £200,000 from 1 April 2023.
Recap on Super Deduction Tax
Put simply, the super-deduction tax break announced in Spring 2021, means your business could claim 130% of what it spends on equipment for the business against taxable profits. There are caveats and constraints to be aware of, but also some real returns.
The capital allowance super deduction, is a tax break aiming to boost UK business growth and productivity. Whether you are a business owner with a limited company, such as a property developer, or a landlord, the new super deduction tax relief, could help you boost profits.
How does it work?
The super deduction is essentially an enhancement to the existing tax relief already available through capital allowances claimed on new qualifying plant and machinery.
It applies to eligible investments in plant and machinery, allowing you to qualify for a 130% capital allowance super-deduction, creating savings of 25p for every £1 spent on fixed assets.
Be warned, the scheme comes with time constraints. Namely a 2-year period, from 1 April 2021-2023. So definitely worth considering bringing any plans you have forward to benefit from the relief.
Am I eligible to apply?
The new capital allowance applies to limited companies – you may if you are a sole trader want to consider the value of incorporating at this point. If certain conditions are met, landlords operating through a limited company and property developers operating through a limited company may also be eligible for the relief.
To give an example of returns, say a company spends £100k on new machinery or IT for the business (hitting all eligibility criteria), they can then deduct 130% of their investment or £130,000, when calculating taxable profits. So a £24,700 tax saving in total.
What can I invest in?
Businesses need to invest in new or unused assets that qualify as ‘main rate pool expenditure’ (ask a member of our team about main pool rates) to qualify for the relief. This is anything that you keep to use in your business, including:
- computer and IT equipment
- office desks and furniture
- fitted kitchens
- fitted bathrooms
- security and fire alarm systems
- ‘hire purchase’ agreements if they will eventually be owned by your company and were purchased for business use
What doesn’t make the grade?
You are not eligible if:
- you are a partnership, LLP or individual
- the assets are second-hand or preowned
- you buy assets for the sole purpose of lending them
- assets bought on finance are not owned by the company
- assets, or contracts were purchased before 3 March 2021. Note there are anti-avoidance rules in place, to ensure companies don’t cancel orders in order to replace them (with the intention of claiming).
At LHP our tax incentives and reliefs team can help you to maximise the value of your claim and are here to support you every step of the way. Get in touch today to see how we can help you with your super deduction claim on Let’s Talk.