What is the new tax super-deduction and how can it help your business?

05/03/2021

In the 2021 Budget announcement, one of the most positive measures unveiled by Chancellor Rishi Sunak was a new tax super-deduction.

There were a number of new measures announced in the briefing, and all were moving towards three key aims: Supporting businesses and individuals through the pandemic, repairing public finances and rebuilding the future economy.

It is hoped that the new tax super-deduction will help towards these targets by encouraging businesses that have the need and means to invest to do so, thereby increasing spending and help to boost the economy.

What does ‘super-deduction’ mean and how does it work?

Between 1 April 2021 and 31 March 2023, businesses will be able to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments or a 50% first-year allowance for qualifying special rate assets.

Ordinarily, the tax relief is 18% and 6% respectively.

So, for example, should a manufacturer buy new qualifying plant and machinery for £100,000, they will be able to deduct £130,000 from taxable income.

Early estimates predict that HMRC could lose out on as much as £29bn as a result. However, the Office for Budget Responsibility (OBR) said it could bring forward investment slated for the end of the decade, thereby driving an accelerated rate of futureproofing of businesses and contributing to kickstarting the economy.

How can it help

The main benefit of this new policy is that it makes it attractive for businesses to invest in new plant and machinery that can help underpin their business and future growth, whilst saving significantly against their tax bill.

For businesses that had longer term plans to make these investments, the tax reduction makes earlier investment the logical way forward, given the sizeable incentive to act quickly. This, in turn, should bring forward the benefit of the new assets into their business, potentially making them more cost-effective and more competitive, all of which is important in assisting economic recovery.

For businesses that are keen to take advantage of this tax incentive but lack the necessary capital, there are various options to access the necessary finance to facilitate the acquisition of new plant and machinery.

Asset finance, for instance, enables businesses to spread payments over several months, reducing the impact on cash flow, while there are other finance methods which can also provide the necessary funds to enable investment in new plant and machinery.

There may be some additional conditions that need to be met in order to qualify for the tax exemption when using finance to purchase assets. However, if you are looking to invest in your business, this could offer a significant incentive.

If you’d like to discuss your options in relation to commercial finance, feel free to call our commercial finance experts on 0800 9774833, request a call back at a convenient time or chat to us online.