Tax relief with super deduction – what is it and how does it work?
What is the super deduction tax break?
The £ 25 billion tax break announced in the budget last Wednesday is designed to boost investment by adding 25 pence to the company’s tax bill for every pound of qualified machinery and equipment spending.
Rishi Sunak told parliament on March 9th that he believed that his super-deductible corporate tax break would not only add two years to business spending, but “also increase the amount of money invested.”
At its peak, the super deduction will increase business investment by 10 percent, or around £ 20 billion per year, according to the Office of Budgetary Responsibility (OBR).
How the super deduction works
From April 1, 2021 to March 31, 2023, the super deduction offers companies 130 percent relief in the first year for qualified investments in systems and machines with the main tariff.
Most business equipment has a super deduction of 130 percent of expenses incurred. This means that if you spend £ 100,000 the corporate tax deduction will be £ 130,000 which translates into a 19 percent corporate tax relief to £ 130,000 which is £ 24,700.
Typically, such expenses are either covered by a company’s annual investment allowance for a relief of only £ 19,000 or, alternatively, 18 percent of annual expenses are tax relief.
Nigel May, Partner at MHA MacIntyre Hudson, said, “Companies wishing to take advantage of this facility will need to be careful if the assets to which the expenses are related are sold. Then tax burdens can arise that reclaim the relief. It is perhaps worth noting that certain expenses are excluded, especially the purchase of company cars. “
What equipment can I claim a super deduction against?
Some of the assets eligible for the Super Deduction include:
- Solar panels
- Computer equipment and servers
- Tractors, trucks, vans
- Ladders, drills, cranes
- Office chairs and desks
- Charging stations for electric vehicles
- Cooling units
- Foundry equipment
Can I claim a super deduction when using wealth finance?
There seems to be some confusion here.
In the draft law on the super deduction, investments in machinery and equipment that are made under a “hire purchase or similar contract” – as is common with small and medium-sized companies – must meet “additional conditions” in order to qualify for the super deduction.
The result is that the 130 percent tax break excludes hire purchase or asset finance agreements, as the super deduction only applies to “the person to whom [the equipment] against bail or employed is the person who bears the costs ”.
According to the Times, more than one in five small and medium-sized businesses use asset financing or rental properties to buy equipment.
Julien Rose of regulatory advisory firm Asset Finance Policy said, “This really needs to be clarified before the rules are confirmed. Hopefully it will soon be confirmed that the relevant leasing will qualify as before. “
However, according to the Finance & Leasing Association, these “additional terms” are there precisely to ensure that the benefit of the super deduction goes to the business customer rather than the lender, and this does not mean that the hire purchase cannot be used.
Super deduction additional conditions
- that you pay a periodic sum and in return plant and machine assets are (rented) for you “against bail”
- that you can ultimately own these assets (e.g. by exercising an option to buy or paying a fee)
- that the person who employs / receives the goods is the one who causes the expenses (i.e. pays for the contract). This ensures that the benefit of the withdrawal goes to the small business rather than the lender.
Simon Goldie, Director of Business Finance at F&LA, said: “There has been some confusion about the super deduction application. For laypeople, it is advantageous if companies purchase devices with cash or a lease purchase agreement.
“In the latter case, legislation requires that the person benefiting from the super deduction“ paid ”the expense of purchasing the equipment. As we understand it, these expenses may include payments made under a lease purchase agreement. ”
The F & LA asked the HMRC for further clarification.
Can I buy used equipment with the super deduction?
The short answer is no. According to Andrew Frost of Genesis Asset Finance, a big change from the parallel annual investment allowance is the exclusion of used equipment from the super deduction.
> See also: Annual investment allowance explained
How was the super deduction obtained?
James Smith, UK economist at ING, told the Telegraph that the super withdrawal was the “business equivalent of Eat Out to Help Out” and encouraged nervous companies to part with some of the £ 252 billion accumulated deposits that UK Finance have been building since the pandemic outbreak.
Former Prime Minister Theresa May, who spoke in the House of Commons on March 9, bizarrely dismissed the super deduction as mere payment for “executive whirlpools”. She told MPs: “Year after year, this is the answer the Treasury finds.”
She said the Treasury Department always resorted to capital relief as a tool to encourage business investment, while what was really needed was an incentive for R&D. However, the government had begun its third review of research and development tax credits in as many years. “I have to say about that [the Chancellor]: Stop advising, just go ahead and do something, “she said withered.
Rishi Sunak sees even higher corporate tax of up to 25%