THE 130% SUPER DEDUCTION EXPLAINED

During the last budget, the chancellor announced a 130% super deduction corporation tax relief for businesses. This was to encourage spending and investment from companies in an attempt to boost the economy.

What does this mean, will it benefit you and how can you take advantage of it?

“From 1st April 2021 until 31st March 2023 companies can claim 130% capital allowances on qualifying plant and machinery.”

What does that mean?

Businesses often need equipment to operate. You can’t run an agency business without computers, you can’t run a roofing company without ladders and a van.

Usually, when you purchase this equipment your accountant will use your annual investment allowance of £1,000,000 and reduce your tax liability by the value of the item.

Eg: If you buy a Macbook Pro for £1,000 you can take that £1,000 off your profit, reducing your corporation tax liability.

(bear in mind the laptop must be 100% for business use. If you use it half the time for business and half the time for personal use, you can only claim 50%.)

However now with the super deduction, until March 2023 you can now claim back 130% of the total cost of qualifying plant and machinery.

130%?! How does that work I hear you cry!

Let’s use the same example above, £1,000 for a laptop. 

Rather than just deducting the £1,000 as before, now you can deduct £1,300 from your taxable profits. Effectively giving you an additional tax saving.

How much tax do you save?

Let’s stick with our £1,000 laptop example.

Usually, if your company was paying 19% corporation tax, you would save £190 in tax if you deducted the cost of that laptop from your taxable profits.

Now under the 130% super deduction, you will save £247, an additional £57.

This might not seem like much on a £1,000 purchase but if you were making a large investment in your business the saving could be hundreds of thousands.

What can I buy?

This super deduction only applies to qualifying plant and machinery, for a full list check out HMRC but as an example things like:

  • Computers
  • Desks
  • Chairs
  • Tractors
  • Lorries
  • Vans

It must be purchased new and not used to qualify.

How can I take advantage of it?

If you were considering investing in plant or machinery, now might be a good time to do it to utilise that 130% super deduction.

If you weren’t planning to, it may well be worth considering what you could buy that would benefit your business. 

Of course, we’d never recommend spending for the sake of it, if your team doesn’t really need all new computers then don’t spend it just to get the tax break!
But for some businesses, it’s going to be a nice extra in the bank.

If you have any questions about the 130% super deduction on IT equipment, or are wondering how it applies to your specific business then don’t hesitate to give us a call.

HMRC Link Below

https://www.gov.uk/guidance/super-deduction

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