Super Deduction Tax Relief
As we count down to the Spring Statement, we’re also reminded of the upcoming deadline of a benefit introduced back in the 2021 Budget by then Chancellor, Rishi Sunak.
Following two years of economic slowdown, one of the measures brought in by Rishi Sunak to help kickstart the economy post-Covid, was what is known as the Super Deduction, which applied to capital expenditure. It came into play from 1 April 2021 and runs until 31 March 2023, meaning it ends in less than a month.
The super deduction applies to limited companies and allows 130% first year capital allowances for qualifying plant and machinery assets that would ordinarily qualify for writing down allowances at the main rate of 19%.
In monetary terms, the super deduction allows companies to cut their tax bill by up to 25p for every £1 spent on qualifying assets.
It may all sound a little complex, so let’s look at some numbers in action.
Example
Assume a company is looking to purchase qualifying plant & machinery assets to the value of £20,000.
If purchased on or before 31/3/23 the company can deduct £26,000 (£20,000 x 130%) when computing its taxable profits. This would give tax relief of £4,940 (£26,000 x 19%).
If purchased after 31/3/23, the company can only deduct £20,000. This would give tax relief of £3,800 (£20,000 x 19%).
Thus by purchasing the assets prior to the end of March 2023, would mean paying £1,140 less in corporation tax.
When is the deadline?
The deadline for any purchases is 31st March 2023, so you need to act quickly.
What assets qualify?
There are a whole host of rules around what can and cannot be purchased whilst qualifying for the Super Deduction.
You can find out more here:
Next Steps
If you have questions or are unsure on any of the details, please get in touch. We’d love to hear from you.
