Utilise the super-deduction and reduce your tax liabilities

A lot of companies are wondering if they can make use of the ‘super-deduction’ – and as we’re coming up to the end of the financial year, our Senior Account Manager Greg Randall takes a deep dive to how it helps your business

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 a few 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 – it covers new vehicles but also equipment such as office chair and desks, charge points and other items needed to run a business. We can help identify it the equipment is covered under the super-deduction.

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 me by calling 01908 926262 or by email at g.randall@moorgatefinance.co.uk – we’re industry experts with years of experience of financing assets. I can help talk you through the super-deduction in more detail – but with only a few months left, it’s important to act quickly. So if you’re planning on ordering vehicles post Euro Bus Expo, we can help.