Taking advantage of the Government’s super deduction tax break

Phil Archer of Wiltshire-based chartered accountants d&t gives you the low-down on Rishi Sunak’s boost for British businesses.

The Government’s well publicised furlough scheme has certainly been grabbing plenty of attention since being introduced in the spring of last year. It’s rarely out of the news, and has been a massive help to many small businesses and individuals throughout the pandemic. However, one other Government initiative which has seemingly flown under the radar in recent months is the super deduction tax break, which came into force on April 1^st this year.

So what is it and are you eligible to take advantage of it?

The Government has supported businesses in many ways during the pandemic. But, despite much-needed assistance, many companies have still had to cut back on their investments. This has been particularly evident when it comes to large capital purchases such as plant, machinery and commercial vehicles.

Yet, in March of this year, Chancellor of the Exchequer Rishi Sunak unveiled the super deduction tax break. He announced that this would become law on April 1^st, and would operate for two years through to March 31^st, 2023. It was introduced to encourage companies to make essential investments, while giving them confidence to grow during what is a difficult period for UK businesses as a whole.

The super deduction tax break increases the level of capital allowances for businesses investing in specific types of equipment – as laid out by this Government document. Tax relief of 130% can be claimed against a company’s taxable profits with regards to those specific assets named in the legislation. This leads to a higher tax deduction in the year that these assets were purchased.

This means it allows companies to claim 130% of what they invest in plant and machinery, against their taxable profits. It will reduce tax bills by 25p for every £1 spent. Or, put another way, for every pound the company spends, it will cut their taxes by 25p. Therefore, should a company spend £100k between now and March 31^st, 2023, on specific machinery, it will reduce their corporation tax bill by £130,000.

Any limited company which purchases specific assets after April 1^st, and pays corporation tax, is eligible for the super deduction tax break. However, Limited Liability Partnerships (LLPs) and Sole Traders are not.

The following items are included in the list of goods which permits companies to claim the super deduction tax break:

• Office chairs and desks;
• Refrigeration units, compressors;
• Commercial vehicles (tractors, lorries, vans etc);
• Solar panels;
• Computer equipment and servers;
• Ladders, drills, cranes;
• Foundry equipment;
• Electric vehicle charge points. 

Calculation in greater detail

• With company profits of £40k, you decide to invest £50k in a new commercial vehicle;
• Corporation tax is 19%;
• Current tax reduction: £50k * 19% = £9.5k;
• But with the new super deduction tax:  £50k * 130% = £65k;
• If you apply the 19% * £65k = £12.35k;
• Therefore the amount of corporation tax you save is: £2.85k (£12.35-9.5).

The Government hopes that this initiative will actively encourage economic growth, by giving UK businesses the confidence to undertake new investments. If you run a company keen to take advantage of the super deduction tax incentive – and, of course, you are eligible – it is a great time to invest. 

We, at d&t in Swindon, are in a position to help you fund the next purchase through asset finance. If you are thinking of upgrading any of your machinery or vehicles, and would like more information about how the super deduction tax break will benefit you, then please get in touch.