Super-Deduction Scheme

19 April 2021

With the launch of the new ‘Super-Deduction’ scheme we sought the advice and thoughts of Ruth Chettle ACA from Canary Accounting Limited.

Ruth has a background in all aspects of audit, accounting, and taxation and qualified as a Chartered Accountant in December 2010. She has since gone on to establish Canary Accounting Limited, which has grown from strength to strength.

What is the super-deduction?

A new ‘Super-Deduction’ scheme has been introduced for the next 2 years to encourage businesses to invest in equipment by reducing their tax bill by 130% of the cost.

For qualifying new plant and machinery assets purchased between 1st April 2021 up to and including 31st March 2023, companies will be able to claim:

  • a super-deduction providing allowances of 130% on most new plant and machinery investments.

  • a first-year allowance of 50% on most new plant and machinery investments for special rate assets such as long-life assets and integral features.

The super-deduction will allow companies to reduce their tax bill by up to 25p for every £1 they invest.

“Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles.”

Who qualifies?

  • UK Ltd companies only as the super deduction relates to corporation tax and not income tax so sole traders and partnerships are not eligible.

What expenditure qualifies?

  • Plant and machinery assets such as machinery, commercial vehicles, computer equipment, software, and furniture.

  • Only available on new and unused assets.

  • There is no limit on the amount of expenditure that qualifies.

Exclusions

  • Assets that will be leased or hired out.

  • Doesn’t apply to used or second-hand items.

  • Cars are excluded.

  • Contracts entered into before 3rd March 2021, even if expenditure is incurred after 1st April 2021.

Extra points to note:

  • If the asset receiving the super-deduction is later sold, the company has to tax the proceeds at 130% too.

  • The super-deduction may not be at 130% if you buy assets in an accounting period that straddles the end date of 31st March 2023, as it is pro-rated down depending on the length of accounting period falling after that date. For example, if you have a year ending 31st December 2023, the super-deduction from 1st January – 31st March 2023 is 107.5%.

“According to a recent article in The Times, more than one in five SMEs use asset finance or hire purchase when purchasing equipment.”

Can you qualify for Super Deduction if you purchase plant and machinery with an asset finance agreement?

Plant and machinery expenditure incurred under a Hire Purchase or similar contract must meet additional conditions to qualify.

As long as payments are being made to acquire the asset and there is an expectation that legal ownership in the asset will pass at some point to the lessee on it exercising an option or another event occurring.

What is the benefit of using an asset finance hire purchase agreement alongside this scheme?

Saves on a large initial outlay keeping the cash in the business, whilst also being able to use the scheme to save on corporation tax.

How does the new Super Deduction interact with the existing Annual Investment Allowance (AIA)?

The super-deduction works alongside the Annual Investment Allowance (AIA).

It has been announced that the AIA will remain at £1m until 31st December 2021 when it will reduce to £200,000.

The AIA is also available on plant and machinery similar to the super-deduction but can also be used on second-hand equipment and assets qualifying as special rate.

Can you use more than one capital allowance scheme?

Yes, you can, so your accountant will make sure that you are optimising the schemes to get the best capital allowance position.

In practice, it would look as follows:

  • Any new plant and equipment qualifying for the super-deduction would be allocated under the super-deduction first (as there is no cap).

  • Any special rate expenditure would be allocated as part of the £1m AIA next.

  • Any special rate expenditure over the £1m AIA will benefit from the 50% first year allowance.

  • Any other qualifying expenditure (such as second-hand equipment) would utilise the AIA (if there is any of the £1m left).

Should businesses take advantage on this scheme?

The super-deduction is only around for the next 2 years so planning is key and should start now.

If businesses are thinking of making any investments in plant and machinery it is worth thinking about bringing it forward to take advantage of this super-deduction.

As with all types of planning, it is worth having a chat with your accountant to discuss your specific situation in more detail.

The Funding Store work with some of the UKs market leading asset based funders, so you are looking to see what asset finance options are available for your business, then contact The Funding Store today for a free, non-obligatory quote.

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This article has been produced by www.TheFundingStore.co.uk for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of the information contained in this article is accepted by HPG Holdings Ltd. In all cases appropriate professional legal and financial advice should be sought before making a decision.

This article has been produced by www.TheFundingStore.co.uk for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of the information contained in this article is accepted by HPG Holdings Ltd. In all cases appropriate professional legal and financial advice should be sought before making a decision.