In April 2021, the government introduced the 'super-deduction', one of their biggest tax incentives for businesses which focussed on stimulating investment and boosting the UK economy. Fast forward two years and we're now preparing to say farewell - but there's still time to benefit from this tax relief!
The super-deduction which was first introduced in 2021 by the Chancellor comes to an end on 31 March 2023. If you're thinking about investing in capital assets for your business, you should make any qualifying expenditures as soon as possible to benefit from the full tax savings available - you could claim up to 25p for every £1 spent on eligible equipment.
In this blog, we will look at how businesses can benefit from the super-deduction, eligibility criteria and what you need to know before the availability period comes to an end.
- What is the super-deduction?
- Does the super-deduction apply to all businesses?
- What are the benefits of the super-deduction?
- What expenses are eligible for the super-deduction?
- How can I maximise tax savings with the super-deduction?
What is the super-deduction?
The super-deduction is a temporary tax relief that allows businesses to enhance their capital allowances and claim up to 130% of their qualifying expenditure on plant and machinery assets incurred between 1 April 2021 to 31 March 2023.
Does the super-deduction apply to all businesses?
The super-deduction does not apply to individuals or partnerships, only businesses are entitled to claim the allowance where they meet the following criteria:
- The company must be subject to Corporation Tax
- The allowable expenditure must have been incurred between 1 April 2021 to 31 March 2023
- The plant, machinery or equipment purchased cannot be part of a contract that was entered in to before 3 March 2021
What are the benefits of the super-deduction?
The super-deduction provides tax relief for UK businesses whereby they benefit from an enhanced deduction. This allows them to save up to 130% of their qualifying expenditure - meaning for every £100 spent on plant and machinery, the business receives a £130 reduction in taxable income.
Three key advantages of claiming the super-deduction:
- Offsets tax liabilities with reduced taxable profits and ultimately impacts your corporation tax bill - reducing what you owe
- Improves cash flow and accelerates capital allowances - freeing up more money for your business sooner
- Encourages investment in new technology and equipment to boost productivity and enhance operations
What expenses are eligible for the super-deduction?
A super-deduction capital allowance is eligible on new plant and machinery investments made by a business during the qualifying timeframe (01/04/2021 - 31/03/2023) - it is not available for used or second-hand assets.
It's important to note that any expenditure that has been previously claimed for using other tax reliefs cannot be claimed under the super-deduction.
Eligible expenses for the super-deduction may include, but are not limited to:
- Computer equipment, printers and servers
- Tractors, company vans or lorries (cars excluded)
- Office furnishings such as desks and chairs
- Fire alarm and security systems
- Solar Panels
- Electric vehicle charging points
- Tools, and warehouse or construction equipment, for instance:
- Drills and ladders
- Forklifts and pallet trucks
- Excavators and compactors
How can I maximise tax savings with the super-deduction?
The best way to maximise your tax savings with the super-deduction is to plan your investments carefully and speak with your accountant or business advisor about eligibility requirements and limitations surrounding this tax incentive.
You will need to keep detailed records of your expenditure and any related documents such as receipts and invoices as you will need these to claim this tax relief.
The super-deduction offers a more generous deduction in comparison with some other types of tax relief programs, with the deadline quickly approaching it is worth seriously considering if there is an opportunity to make a qualifying investment before the 31 March 2023 deadline.
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