Tax relief with super deduction – what is it and how does it work?
What is the super withholding tax?
The £ 25 billion tax break announced in the budget last Wednesday is designed to boost investment by adding 25 pence to the company’s tax bill for every pound of qualified machinery and equipment spending.
How the super deduction works
From April 1, 2021 to March 31, 2023, the super deduction offers companies 130 percent relief in the first year for qualified investments in systems and machines with the main tariff.
Most business equipment has a super deduction of 130 percent of expenses incurred. This means that if you spend £ 100,000 the corporate tax deduction will be £ 130,000 which translates to a 19 percent corporate tax relief to £ 130,000 which is £ 24,700.
Typically, such expenses are either covered by a company’s annual investment allowance and result in a relief of only £ 19,000 or, alternatively, an 18 percent tax relief of annual expenses.
Nigel May, Partner at MHA MacIntyre Hudson, said, “Companies wishing to take advantage of this facility will need to be careful if the assets to which the expenses are related are sold. Then tax burdens can arise that demand the relief back. It is perhaps worth noting that certain expenses are excluded, especially the purchase of company cars. “
What equipment can I claim a super deduction against?
Some of the assets eligible for the Super Deduction include:
- Solar panels
- Computer equipment and servers
- Tractors, trucks, vans
- Ladders, drills, cranes
- Office chairs and desks
- Charging stations for electric vehicles
- Cooling units
- Foundry equipment
Can I claim a super deduction when using wealth finance?
There seems to be some confusion here.
In the draft law on the super deduction, investments in machinery and equipment that are made under a “hire purchase or similar contract” – as is common with small and medium-sized companies – must meet “additional conditions” in order to qualify for the super deduction.
The result is that the 130 percent tax break excludes hire purchase or asset finance agreements, as the super deduction only applies to “the person to whom [the equipment] against bail or employed is the person who bears the costs ”.
According to the Times, more than one in five small and medium-sized businesses use asset financing or rental properties to buy equipment.
Julien Rose of regulatory advisory firm Asset Finance Policy said, “This really needs to be clarified before the rules are confirmed. Hopefully it will soon be confirmed that the relevant leasing will qualify as before. “
However, according to the Finance & Leasing Association, these “additional terms” are there precisely to ensure that the benefit of the super deduction goes to the business customer rather than the lender, and this does not mean that the hire purchase cannot be used.
Super deduction additional conditions
- that you pay a periodic sum and in return plant and machine assets are (rented) for you “against a deposit”
- that you can ultimately own these assets (e.g. by exercising an option to buy or paying a fee)
- that the person who hires / receives the goods is the one who causes the expenses (i.e. pays for the contract). This ensures that the benefit of the withdrawal goes to the small business rather than the lender.
Simon Goldie, Director of Business Finance at F&LA, said, “There has been some confusion about the super deduction application. For laypeople, it is advantageous if companies purchase devices with cash or a lease purchase agreement.
“In the latter case, the law requires that the person benefiting from the super deduction“ paid ”for the equipment to be purchased. As far as we know, these expenses may include payments made under a lease purchase agreement. ”
The F & LA asked the HMRC for further clarification.
Rishi Sunak sees even higher corporate tax of up to 25%