Companies are being advised that time is running out to be able to take advantage of the Corporation Tax super-deduction capital allowance scheme.

The scheme, which runs until 31 March 2023, allows businesses to claim back 130 per cent on qualifying investments made in plant or machinery.

With Corporation Tax rates set to rise in April 2023, there is very little time left to benefit from this measure.

The idea of the scheme followed the announcement that Corporation Tax was to increase to 25% from 1st April 2023 and the Government did not want companies to delay investment to obtain the higher tax relief.

From 1 April 2023, the rates of Corporation Tax are:-

First £50,000 of profit                         19%

Next £200,000 of profit                       26.5%

Remaining profits over £250,000       25%

Super-deduction being 130% of 19% currently gives a CT reduction of 24.7%.

What does the super-deduction mean for businesses?

The measure allows companies to claim a super-deduction, which provides an allowance of 130 per cent on most new plant and machinery investments, that would ordinarily qualify for main rate writing down allowances.

They can also use a first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for reduced rate writing down allowances.

What is classified as plant and machinery?

There are many forms of ‘tangible’ assets used in the day-to-day running of a business. Some examples include:

  • Ladders, drills, cranes
  • Office furniture
  • Computers
  • Electric Vehicle charge points
  • Vans

Certain expenditure is excluded, for example, the acquisition of company cars. To benefit from the relief the assets purchased must also be new and not second-hand or refurbished equipment.

How does the super-deduction work?

A company incurring £1 million of qualifying investments decides to claim the super-deduction.

Spending £1 million will mean the company can deduct £1.3 million (130 per cent of the initial investment) in working out its taxable profits.

Deducting £1.3 million from its taxable profits will save the company up to 19 per cent of that – or £247,000 on its Corporation Tax bill.

However, if the expenditure is after 31 March 2023, the company would have been able to claim £1,000,000 at 25% i.e., £250,000.

The Winners

The winner is a company that will only be paying Corporation Tax at 19% after 31 March 2023. In that case, a deduction on say a £20,000 van now would be worth £20,000 x 130% x 19% i.e., £4,940, whereas after 31 March 2023, the deduction would only be £20,000 x 19% = £3,800.

Transitional Rules

For companies with year ends straddling 31 March, the super-deduction rate of 130% will be given on the proportion of the accounting period occurring before 31 March 2023 e.g., for a December 2023 year end, only 130% x 9/12 would qualify.

What about unincorporated businesses?

The relief is only available to limited companies, but unincorporated businesses can continue to benefit from the Annual Investment Allowance (AIA), which permits a deduction of 100 per cent for qualifying plant or machinery expenditure, up to the threshold of £1 million.

Need advice on what allowances you can claim…

If you have investment plans that you think could qualify for the allowance, getting the right advice is key.

Our team of chartered accountants and business advisers can discuss with you what the implications are for your organisation, and ensure you are making the most of allowances available to you.

To discuss your requirements with one of our professionals, or to arrange a free initial consultation, contact us today.

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