130% super deduction tax relief deadline

With the cost of living rising, businesses are also feeling the pinch.  However, is there anything they can do to lower their tax bill?

130% Super Deduction Availability

If you are needing to invest in new equipment to make your business more efficient, now could be the time to make that all important investment due to the availability of the 130% super deduction.

Key points to consider for eligibility for the super deduction are that:

  • The assets acquired must be new and unused.
  • It only applies to contracts entered into after 3 March 2021.
  • It can cover capital expenditure on qualifying plant and machinery up until 31 March 2023.
  • There is no upper limit on how much you can claim.
  • It is only available to companies.
  • There is a claw back of relief where the asset is sold prior to 31 March 2023.

For each piece of plant purchased the company will be able to obtain an extra 30% tax deduction from their profits.

What if Super Deduction isn’t available?

Even if the asset does not qualify for the super deduction because it is second hand, the company will still be able to claim the Annual Investment Allowance (AIA) and claim 100% of the cost against their profits in the year of purchase.

Regarding AIA:

  • AIA allows businesses to deduct the full value of the first £1 million of qualifying expenditure from its taxable profits in the year of expenditure.  Writing Down Allowance (WDA) is claimed on any expenditure exceeding this amount.
  • AIA can be claimed on second-hand assets.
  • AIA is available to sole-traders and partnerships, as well as limited companies. But is not available to mixed partnerships (where one of the partners is a corporate entity).

Qualification for the super deduction and the AIA differs, and there is interaction between the two.  Where both can be claimed, careful consideration is required to ensure that tax relief is maximised.

What happens where Super Deduction and AIA claims result in a tax loss?

Where trading losses arise because of claiming the super deduction or AIA, the taxpayer may be able to carry those losses back to obtain relief and create a repayment where tax has been paid in the previous year, or for companies, pass them to other group companies.  Alternatively, the losses can be carried forward and relief obtained at 25% for accounting periods after 31 March 2023 when the main rate of corporation tax increases to 25%.

How long is 130% Super Deduction available for?

Availability of the super deduction ends on 31 March 2023 which is also the date that corporation tax rates increase.

What is the new rate of corporation tax?

From 1 April 2023, the main rate of corporation tax will increase to 25% on profits over £250,000.  A small profits rate will be introduced for companies with profits of £50,000 of less, which will continue to be charged at 19%.  Companies with profits between £50,000 and £250,000 will pay tax at the main rate, but this will be reduced by a marginal relief creating a tapered corporation tax rate.

Therefore, the timing of expenditure may well be worth considering if your profits fall within the marginal rate between £50,000 and £250,000, perhaps by delaying the expenditure until after 31 March 2023 to reduce profits below £50,000 and pay corporation tax at 19% rather than at 25% or the marginal rate.

If the company is considering investing in assets prior to 31 March 2023 which would create a loss, this loss could be carried forward. Again, depending on the level of profits in the following year, relief would be available at 25%.

Any business contemplating capital expenditure needs to plan carefully to maximum the potential reliefs available.  If you are thinking of investing in assets for your business, please get in touch and we can advise you on the reliefs available.

Contact Fiona Mitchell at fmitchell@thomsoncooper.com.

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