130% Super Deduction Set to Run Out on 31 March 2023

Steve Livingston -

Time is running out to claim the 130% super deduction tax relief on investments in new assets for your company.

This temporary tax incentive was announced in the 2021 Budget by Rishi Sunak to encourage companies to invest in new equipment such as computers, machinery, tools, lathes, planers, plant, vans and other equipment (this is not an exhaustive list). Basically, the 'tools of your trade' that have an enduring use within your business and that are treated as fixed assets on your balance sheet for accounting purposes.

The aim is to cut your tax bill by 25p in the £1 for business investment in qualifying fixed assets.

This relief falls within the range and types of Capital Allowance reliefs that apply to expenditure on fixed assets under the UK tax code.

Example

Say a VAT-registered limited company purchases a new laptop for £1,200 (inc VAT) today.

It could reclaim the £200 VAT in the normal way and then claim capital allowance relief on the remaining £1,000 of expenditure. Ordinarily, the company would claim the Annual Investment Allowance relief (AIA) which allows for the full £1,000 (100%) to be deducted against taxable profits in the period (generating a cash tax saving of £190 at the current 19% rate of corporation tax).

However, by electing to claim the Super Deduction Capital Allowance, the £1,000 expenditure will be notionally increased by a further £300 (130%) to allow for a total of £1,300 to be deducted against taxable profits in the chargeable period (this equates to a cash tax saving of £247 after applying the current 19% company tax rate).

The 130% relief results in an effective tax saving of 25% on purchases of qualifying tangible capital assets.

Who qualifies for the 130% Super Deduction corporation tax relief?

This relief applies to limited companies only.

Sole traders and partnerships do not qualify.

Is expenditure on computers included in the 130% super deduction relief?

Yes, purchases of new computers, PCs, laptops, printers, scanners and any other related equipment benefit from the super deduction capital allowance.

Are purchases of second-hand equipment eligible for the 130% super deduction?

No, the 130% relief applies to purchases of brand-new equipment only. Second-hand purchases will not qualify.

Do cars qualify for the 130% super deduction?

No, cars do not qualify.

Do electric cars qualify for the 130% super deduction?

No, electric vehicle cars do not qualify.

Do vans or tractors qualify for the 130% super deduction?

Yes, commercial vehicles such as vans, lorries, forklift trucks and tractors qualify.

What other equipment (not mentioned above) falls within this temporary 130% super - deduction relief?

  • Solar panels
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment

Not an exhaustive list.

What if I purchase the new equipment under hire purchase rather than outright?

Hire purchase expenditure can qualify for the super deduction as long as the asset is used in the business and you have the right to acquire ownership at the end of the agreement under the terms of the Hire Purchase Agreement.

When does the special 130% capital allowance apply?

This temporary relief applies to qualifying expenditure incurred between 1 April 2021 and 31 March 2023.

How do I claim this temporary relief?

You need to incur the expenditure by 31 March 2023 and then the claim should be included in your CT600 company tax return at the end of your accounting period.

Of course, you should only buy new equipment that you really need in your business. After all, if you didn't actually need the asset, there is no point in spending £1,000 to save £250.

If, however, you have capital spending planned in your budget, then it makes sense to purchase the property before 31 March 2023, subject to cash flow requirements.

What happens if I dispose of an asset that I claimed the super deduction on?

You will need to apply a factor of 1.3 to the disposal proceeds on the sale and this is subject to a balancing charge under special Disposal Rules.

What if I have tax losses in the period so don't pay tax?

The 130% relief can help increase the tax losses to carry forward to offset against future taxable profits.

What is the impact of the rate of corporation tax changing to 25% from 1 April 2023?

For companies with taxable profits over £250,000, you do not need to accelerate expenditure to claim this temporary relief, as you will secure tax relief at the same 25% tax rate in any case i.e. the temporary relief aims to provide a cash tax saving equivalent to a 25% tax rate and was intended to stop companies from deferring investment until the new higher relief kicked in on 1 April 2023.

For companies with taxable profits expected to be below £50,000 (and who will therefore remain subject to the 19% tax rate), then the clock really is ticking to maximise the benefit of the 130% (cash benefit of 24.7%) Super Deduction relief by 31 March 2023.

Reach out for further advice and assistance.