It was an impressive Budget 2021 from Chancellor Rishi Sunak. The very positive news comes from a focus on investment to boost capital expenditure, improve productivity and make the UK a more attractive place to do business.
There are so many questions about how the super deduction works, so we thought we would shed some light on this scheme. But please, if you are considering purchasing capital equipment on the back of reading this article, discuss it with your accountant first to check it qualifies under the scheme.
As a result of measures announced at this Budget, businesses will now benefit from the super-deduction – which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31st March 2023.
If you were going to purchase new capital equipment, you should be cheering at this scheme.
“The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.”
➡️ Since the Covid-19 pandemic, existing low levels of business investment have fallen, reducing 11.6% between Q3 2019 and Q3 2020.
➡️ Much of the UK’s productivity gap with competitors is attributable to our historically low business investment levels compared to our peers. Weak business investment has played a significant role in the slowdown of productivity growth since 2008.
➡️ Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles.
➡️ The super-deduction will give companies a strong incentive to make additional investments and to bring planned investments forward.
➡️ A tax information and impact note for the policy, and draft legislation, is published here.
➡️ The new super-deduction is only available to companies within the charge to corporation tax. Unincorporated businesses cannot benefit under this new rule and will continue to be able to claim the capital allowances at 100% of up to £1m under the annual investment allowance. The annual investment allowance had previously been extended for another year until 31 December 2021 when it is due to revert back to £200,000.
We have put together some examples of capital purchases that qualify under the super-deduction scheme; as ever, these are approximate examples. Please refer to your accountant for advice tailored to your personal and business circumstances.
|Product||Price (Ex VAT)||Approximate Tax Deduction (Ex VAT)|
|Pitco Single Tank Gas Fryer VF35||£1,699||,£2208|
|Adande VCS2 Under Counter Double Drawer||£3,534||£4,240|
|Foster EP700F Fish Keeper||£2,828||£3,676|
|Rational iCombi Classic Combi Oven ICC 20-2/1/G||£18,999.99||£24,698|
|What Qualifies||What Doesnt|
|New Equipment (Frying Range, Table Top Fryers, Fridges, Freezers)||Used Equipment (Frying Range, Table Top Fryers, Fridges, Freezers)|
|Commercial Van (Mobile Fish & Chip Van / Trailer,Mobile Ice Cream Van, Mobile Fishmongers)||Motorbikes (inc Delivery Bike, Scooter, Electric Scooter)|
|Solar Panels||Small White Goods|
|Computer (inc Desktop, Laptop, Epos)||Mouse, Keyboard|
➡️ Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not ordinarily tax-deductible. Businesses deduct capital allowances when computing their taxable profits.
➡️ In translating its accounting profits into taxable profits, a business is usually required to add back any depreciation but can instead deduct capital allowances. For example, a corporation tax paying company with accounting profits of £1,000, depreciation expense of £200 and total capital allowance claims of £300 would make the following adjustment:
↪️ Add £200 (depreciation expense) to £1,000 (accounting profits) = £1,200
↪️ Deduct £300 (capital allowances) from £1,200 = £900 (taxable profits)
↪️ Apply the appropriate tax rate, e.g. corporation tax at 19%: £900 x 19% = £171 tax due
➡️ The two main types of capital allowances are:
↪️ Writing Down Allowances (WDAs) for plant & machinery – covering most capital equipment used in trade; and
↪️ Structures and Buildings Allowances (SBA) – covering the construction and renovation of non-residential structures and buildings.
➡️ The 130% super-deduction and 50% first-year allowance are generous brand new capital allowances for investments in plant and machinery assets. Both will allow investing companies to lower their corporation tax bills.