If you are looking to invest in any plant and machinery assets for your business, you could benefit from claiming the super-deduction allowance (also known as the 130% allowance). Introduced by Chancellor of the Exchequer Rishi Sunak in 2021 to stimulate the economy following the peak of the Covid-19 pandemic, the 130% tax relief will allow your business to acquire new assets with a drastically reduced tax bill. If you wish to take advantage of this scheme but you are not too sure how, allow us to explain all and how you could benefit.
What is super deduction?
From April 2021 up until April 2023, businesses are be able to claim capital allowance on qualifying plant and machinery investments at a rate of 130%, that would usually qualify for 18% main pool rate of tax relief. This generous tax incentive has become known as 130 super-deduction.
In simple terms, it means you can claim back up to 25p for every pound invested in qualifying assets. For example, if a company pays corporation tax on an investment of £100,000 into new machinery, it is able to claim a £130,000 deduction against taxable profits, which would result in a £24,700 saving on corporation tax.
There is also a 50% first year allowance for certain special rate (SR) assets, such as integral features (plant and machinery which are integral to a building, such as a lift or cold-water system) and long-life assets, which is known as the SR allowance.
These are the largest tax incentives ever offered by any UK government.
Super deduction qualifying plant and machinery
If you wish to invest in qualifying assets that will allow you to make these tax savings, it is important to be aware which assets are eligible. Super deduction covers all new plant and machinery which would usually qualify for the 18% main pool rate. This includes:
- Computer equipment
- Commercial vehicles – tractors, lorries, vans etc.
- Office desks, chairs
- Ladders, cranes, construction equipment
- Refrigeration units
- Electric vehicle charging points
It is important to remember that company cars and second-hand equipment are excluded from this allowance, so you will not be able to claim tax relief on these assets.
How can the super deduction help my business?
This allowance can benefit a company investing in new equipment and machinery, so that they are able to cut their tax bill significantly. If you are looking to increase the amount of assets your company owns or increase the size of your operation by expanding your fleet of commercial vehicles and equipment you possess, this is the perfect opportunity to do so. You should remember that if you are to sell off these main pool items after the 1 April 2023 deadline, you will automatically suffer a balancing charge, which will be a 25% corporation tax rate so don’t leave it too late.
Can my business claim super-deduction if I use asset finance?
You must meet certain conditions if your business investment in new plant and machinery is under a hire purchase agreement. A general rule to follow is that as long as your company is making payments to acquire legal ownership of the asset and ownership will (at some point) pass over to you, super-deduction should be available.
If you wish to take advantage of the super deduction allowance and invest in plant and machinery assets for your business, it is worthwhile speaking to your accountant first. At Omer & Company, we can offer our expert business and personal tax advice so that you can make the most of tax relief opportunities. To find out more about our services, give us a call on 020 8850 0700 or email info@omeraccountants.co.uk.
