What is the Super Deduction?
Running from 1st April until 31st March 2023 the Super Deduction is an enhanced relief available on the purchase and investment of capital assets, such as office equipment and machinery.
When you purchase capital equipment, you are able to claim 100% of the cost against your profits (up to a total of £1m, which is normally more than enough for our clients). However, the super deduction increases the claim to 130% of the cost of the asset, with no £1m threshold.
For example: a £10,000 expense would equate to a reduction of profit of £13,000, which in turn reduces the Corporation Tax by £2,470, as opposed to £1,900 under the previous rules. This means that qualifying expenditure attracts tax relief at 24.7%
What expenses qualify?
- Capital goods such as movable property in a building, e.g. stud walls, carpets, desks, IT equipment, machinery
- The capital goods must be new, not second hand
- They must be purchased between 1st April 2021 and 31st March 2023, but not committed to prior to 31st March 2021
What's not covered?
As opposed to second hand equipment, cars are the biggest thing, but it looks like vans are included. There have been some tax cases recently concerning 'what's a van' and 'what's not a van' so please don't purchase a van expecting to take advantage of these rules before consulting us.
Why does this relief end on 31st March 2023?
The rate of Corporation Tax increases to 25% from 1st April 2023 for those businesses with profits over £250,000, and 26.5% for those with profits between £50,000 and £250,000. Some would have seen that the rate of tax at that time will be very similar to the super deduction rate of 24.7%, so making the super deduction available after 31st March 2023 seems unnecessary.
What happens when I sell an asset that I've claimed under the Super Deduction?
In short, the government want the claimed enhanced expense back. So, in our above example, let's say that the asset that cost £10,000 was sold in 3 years' time for £2,000. You would have to add the extra £3,000 claimed at purchase to the £2,000 disposal proceeds and pay tax at the rate at that time on £5,000. This would mean a tax bill of £1,325 on a sale of £2,000 if the Corporation tax rate was 26.5%.
Super Deduction or Super Spin?
I'll leave for this you to decide. There will of course be those of you that will be very grateful for the extra relief and likely keep assets for a long period of time. This relief will be valuable, I'm sure in those circumstances, especially where you are spending money to make premises Covid secure in readiness for 12th April or 17th May, or even 21st June in some cases. However, when the asset is disposed of or scrapped, then be prepared that you will have to pay the tax back at that point.