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The 130% Super Deduction Tax explained!


The 130% Super Deduction Tax!

In one of the biggest business tax cuts in Britain so far, there are excellent opportunities for businesses to save some money on their asset purchase expenditure with the Super Deduction tax. It allows businesses to cut their tax bills by up to 25p per £1 that is invested, giving the UK one of the most competitive capital allowances in the world. With such large savings available, there has never been a more perfect time to start your next investment in equipment. So, what exactly is the Super Tax Deduction, and what is and isn’t included?

The measure has been put into place to help increase reliefs around plant and vehicle expenditure, as an enhanced form of First Year Allowance (FYA) tax. It has increased what would normally be included in an FYA, and it covers expenditure from the 1st of April 2021 up until the 31st of March 2023.

The new policy allows you a Super Deduction allowance of 130% on most new asset investments, that would normally only qualify for 18% main rate writing down allowances. It also allows you a first year allowance of 50% on most new asset investments that would normally only qualify for 6% special rate writing down allowances. An example of this would be:

Previous systemSuper-deduction
  • If a company spent £10m on qualifying assets, £1m would be deducted using the Annual Investment Allowance (AIA) in year 1, leaving them with £9m.
  • £1.62m would be deducted using Writing Down Allowances (WDAs) at 18%.
  • Deductions total £2.62m and a tax saving of 19% x £2.62m = savings of £497,800
  • In the same situation, a company spends £10m on qualifying assets but can now deduct £13m using the super-deduction in year 1.

 

  • They would then as a result of this receive a tax saving of 19% x £13m meaning they save £2.47m!

Looking at such a big difference in savings, there is no time to waste. Here are some of the key points:

  • You must be a limited company.
  • There is no expenditure limit.
  • Any contract before the 3rd of March will not be included.
  • You must own the assets, you cannot use this facility if you are leasing.
  • Hire purchase is accepted, as you will own the asset at the end of the agreement.
  • If you are under a hire purchase agreement, then the person who is named on that agreement must be the person claiming back the super-deduction allowance and entering the agreement.

Which products can the super-tax deduction be used on?

  • Solar panels
  • Computer equipment and servers
  • Tractors, Lorries and Vans
  • Ladders, drills, and cranes
  • Office chairs and desks
  • Electrical vehicle charging points
  • Refrigeration units
  • Compressors
  • Foundry equipment

Which products aren’t included?

  • Cars
  • Second hand assets
  • Used assets
  • Expenditure on provision of plant or machinery for leasing.

This can have huge results for your business and budget plans. If you have any queries, please give us a call on 01422 557 662 or fill in the Contact Us form on our website and one of our team will be happy to help with any questions or requirements you may have coming up. Alternatively send an email to info@fullcircleassetfinance.co.uk and we will reply within 24 hours.

 

 

 

Reference:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/967202/Super_deduction_factsheet.pdf

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