In the 2021 Budget, Chancellor Rishi Sunak announced a short-term tax incentive to purchase new equipment in the form of more expansive capital allowances worth up to 130%. As you can imagine, these new allowances have gained the moniker of “Super-deductions”

Here’s how it works

The new capital allowances fall in two parts;

1. Main rate pool assets can claim up to 130% of the cost as a deduction from taxable profits
2. Special rate pool assets can claim an effective first year allowance of 50% instead of just the usual 6% annual allowance

How the super-deduction can improve your return on investment

The super-deduction will give you a lower level of taxation and so better tax cash flow

However, this must be offset against the earlier timing of the gross cash flow.

Also, if the new assets generate increased profitability, more of this will be taxed at the lower Corporation Tax Rate of 19% rather than the increased rate of 25% which will apply from 1 April 2023.

Terms & conditions

As with everything qualifying rules apply including;

• This is not available to Sole Traders but could be a tipping point for incorporation – see separate article
• Being used on unused plant or machinery (second-hand goods will not qualify)
• Can not be within the general exclusions in s.46 Capital Allowances Act 2001 (CAA) , e.g. cars or plant and machinery for leasing; and
• Expenditure must not be special rate expenditure under s.104A CAA (though the 50% deduction may apply).
• For accounting periods straddle 31 March 2023, the normal 130% rate is tapered down to 100% for the portion of the period after 31 March 2023 giving a blended rate
• The new super-deduction will also apply to certain types of leased assets
• Applicable to expenditure incurred between 1 April 2021 to 31 March 2023

Planning for prosperity

If you are considering bringing forward capex into the super-deduction period, first crunch the numbers and plan well.

Tax and business planning are a key process that all business owners should work through each year. Simple tax planning is an integral part of our service to all our clients as are management and business improvement ideas.

Call us for a free consultation and, together, let’s prepare a more prosperous path for you and your business.

You can reach us on 01753 428220 or by emailing info@astaraccounting.co.uk

Wisdom

Wisdom Da Costa is a director at A Star Accounting Services Ltd and also an Associate Member of the Association of Corporate Treasurers and a Fellow of the Association of Chartered Certified Accountants