How can Businesses take advantage of the Super Deduction?

As you may or may not be aware during his Spring Budget in 2021 the Chancellor of the Exchequer, Rishi Sunak, announced companies can claim 130% capital allowances on qualifying plant and machinery purchased up until the end of March 2023.

Why is the Government doing this? 

Prior to Covid-19, the level of investment made by UK businesses was low and this has fallen further as a result of the pandemic. By making capital allowances more generous the Government are hoping to encourage businesses investment to help stimulate economic growth and recovery. They are hoping this will incentivise companies to bring planned investments forward and even cause them to consider making additional investments.

What are Capital Allowances?

Capital allowances allow tax paying businesses to deduct the cost of certain assets against their taxable income. Instead of using accounting deprecation, which isn’t tax deductible, businesses can deduct capital allowances when calculating their taxable profits.

Plant and Machinery Asset Finance - Digger

What is plant and machinery?

The majority of capital assets that have a specific business use are classified as plant and machinery for the case of capital allowances.

There is no exhaustive list of what qualifies as plant and machinery, however assets that may qualify for the super-deduction 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
  • Compressors
  • Foundry equipment

An example of the Super-deduction in action:

  1. A company spending £100,000 on qualifying assets decides to claim the super-deduction
  2. Spending £100,000 on qualifying investments will mean the company can deduct £130,000 (130% of the initial investment) when computing its taxable profits
  3. Deducting £130,000 from taxable profits will save the company up to 19% of that – or £24,700 – on its corporation tax bill.

Can I use a finance facility and also use the Super Deduction Allowance?

Hire purchase finance qualify under the super-deduction allowance.

This is an advantage to many businesses, instead of purchasing an asset outright, you will be able to make affordable monthly payments over a period of time and retain working capital within the business.

If you’re looking for more information on Asset Finance, don’t hesitate to get in touch with our team for a no-obligation discussion about your needs. Call us on 01270 443510 or complete our contact form and we’ll get in touch with you whenever is best to discuss your requirements.

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