On 3rd March, Rishi Sunak announced a new super-deduction tax relief scheme as a part of the recent 2021 budget. This new scheme intends to reinvigorate and encourage investments by offering companies relief on business spending.
What is Super Deduction Tax Relief?
Starting from the 1st April, for a period of two years, companies will be able to claim back up to 130% of what they spend on equipment for their business against taxable profits. Providing 25p off company tax bills for every £1 of qualifying spending on plant and machinery.
Rishi Sunak also announced a 50% first-year allowance for qualifying special rate assets.
The super-deduction tax relief acquaints to tax break valued at £25 billion and hopes to increase business investments and spur economic growth post-pandemic.
What is the definition of equipment?
There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks,
- Electric vehicle charge points
- Refrigeration units
- Foundry equipment
More detail on the eligibility of different types of investments for different types of capital allowances is set out on the government website here.
Why is the UK Government doing this?
Prior to the pandemic (March 2020) business investment levels were already struggling, and ended up falling even further following the announcement of pandemic lockdown restrictions. Twelve months on business investment levels are still very low, and so the government hopes that their more generous capital allowances will encourage levels to rise through 2021 and onto April 2023.
Are there any restrictions?
Some of the things that have been outlined that do not qualify for tax relief:
- Company cars
- Buildings and structures
- Equipment that landlords install in rental units (e.g. air conditioning)
- Any equipment that you offer for rent
However, with the absence of an upper monetary limit and not many exclusions on the types of plants and machinery this can be applied to, this announcement is a great incentive for companies to bring forward business investments.
Furthermore, companies using finance to invest will also benefit from the Chancellor’s super-deduction provided consistent payments are made and the lessee will eventually acquire legal ownership of the asset.
However, companies are warned not to dispose of the assets before the end of the regime to avoid costly tax charges and to keep accurate records of individual assets they purchase.
Want to talk to someone about Super Deduction Tax Relief? Looking for some advice on the best investments for your business?
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