Support Articles

Save money by investing with the Super Deduction Tax Scheme

23 Jul 2021

With many businesses still navigating the long path to recovery following recent disruption, we are keeping you up to date with the various schemes that the government are making available to support business owners.

Today we are looking at the Super Deduction Tax Scheme; specifically what it is, how you could benefit from it and our advice about the scheme. 

Q: What is the Super Deduction Tax Scheme?

A: Since the Covid-19 pandemic, business investment levels have fallen with a reduction of 11.3% between Q3 2019 and Q3 2020. This was from an already historically low level of business investment within the UK when compared to our peers. 

Here’s how the Super Deduction seeks to help businesses:

  • The Super Deduction allows companies 130% first year tax relief on qualifying assets until 23 March 2023. 
  • This means companies can deduct 130% of qualifying investment costs from their profits when calculating the amount of tax they will need pay.
  • Under the Super Deduction scheme, for every pound a company invests, their taxes are cut by up to 25p.  

The Super Deduction will give companies a strong incentive to make additional investments and bring planned investments forward. Making allowances more generous works to stimulate business investment and as a result can promote economic growth. 

Q: How much money does that mean I can save?

A: The government advise for every pound a company invests; their taxes will be cut by up to 25p.

For example:

A business with annual profits of £500,000 decides to invest £100,000 on new plant and machinery. 

The 130% deduction means that when calculating corporation tax at 19%, the business can reduce the £500,000 taxable figure by £130,000. This works out at as a £25,000 saving on the company’s corporation tax bill.

The current scheme would equate to just a £3,400 saving.

Q: What kind of assets are eligible for the Super Deduction Tax Break?

A: You can deduct any investment in new and unused plant and machinery. Assets include:

  • all commercial vehicles
  • all plant and machinery
  • tooling equipment
  • computer equipment
  • office equipment

The deduction can only be applied to new or un-used equipment purchased. You cannot apply for the deduction on second-hand or used assets. If you’re looking to buy cars or second-hand assets, the Annual Investment Allowance (AIA) allows you to deduct as much as £1m from your tax bill. This is currently a temporary measure and reverts to just £200,000 at the end of December. 

The government also announced it will increase the ‘first-year allowance’ (FYA) scheme from 6% to 50% for the same types of assets that are covered by the Super Deduction until 31st December 2021.

Q: Is my business eligible for a Super Deduction Tax Break?

A: Any company that pays corporation tax and purchases new plant or machinery assets after 1st April of this year can qualify for the tax incentive. 

Q: Who is not eligible?

A: Sole traders, partnerships and LLPs do not qualify.

Q: When does the Super Deduction Tax Scheme end?

A: The Super Deduction tax incentive lasts until 31st March 2023.

A view from the experts... 

"I often get asked when the best time to invest is. It is not always a straightforward answer as there are many variables which need to be handled on a business-by-business basis, however…

Currently, my thoughts with the tax incentives in place is that it is a great time to invest for many businesses. The new tax incentives in place and record low levels of interest rates means that now could be the most cost-effective time to give the “green light” on any strategic capex spend you may have." - Martin Taylor, Executive Director

At CBF, we find that getting to know your business inside out helps us to deliver the best financial advice possible. By working closely with you, we are able to identify various schemes that could work for your business, including the Super Deduction Tax Scheme. Should you wish to speak to us please do not hesitate to get in touch.
0114 442 8008