Super deduction for capital expenditure
This new incentive was announced by the chancellor in the March budget. It has been designed to encourage businesses to confidently invest in themselves after the last year of closures and furloughs. It is supposed to get money moving as part of the covid recovery plan.
How super is this capital allowance?
The Super Deduction is a tax incentive that is available to limited companies (sadly not to the self-employed) which means they can now claim capital allowances of 130% on most new plant & machinery that ordinarily qualifies for 18% main rate writing down allowance. Or a first year allowance of 50% on most new plant & machinery that ordinarily qualifies for the 6% writing down allowance.
OK, what does that all mean in english rather than Accountant-speak? Let’s look at an example…
An example of capital expenditure for super deduction
Limited company capital allowances
If you own a limited company and purchase things like a van or computer equipment you can claim 130% of the cost of against your profits to reduce the amount of corporation tax you pay. Yes, that’s 30% MORE than the cost of it against your tax bill. Not too shabby,
Or if you buy something like a long-life asset or a car with high Co2 emissions you can claim 50% of the cost as a first year allowance. Also pretty sweet.
How long will the super deduction last?
The Super Deduction is a two year temporary measure that runs from 1st April 2021 to 31st March 2023. So if you need to invest in new plant & machinery in the next couple of years it’s worth planning to ensure you make the purchase within the qualifying period to take full advantage. Governments don’t often give away tax incentives unless you are lucky enough to have a Cayman Island accountants, so this does provide quite a windfall.
Super tax deduction for self-employed
If you are not a limited company and are in fact self-employed then I am afraid you miss out on this scheme.
However, the old rules still apply, so whilst you cannot benefit from the super deduction of 130%, you can still claim 100% of the cost of the plant & machinery against your profits within the normal annual investment scheme. Nothing lost, but nothing gained.
In all cases, limited or self employed, you do not have to claim the full relief and can still claim 18% capital allowances to spread the benefit to future years if you have made a loss or low profits.
If you want to discuss the pros and cons of making a substantial capital investment in the next couple of years to benefit from this super deduction but are feeling a bit unsure, please get in touch with us. We can help you to plan, budget and maximise this limited time tax incentive. That is what we do!
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