Corporation Tax – Super-deduction
Another Covid measure to encourage businesses to invest in efficiencies (to get the economy back up to speed) is the Government’s temporary “super-deduction” for capital spending (new computers, machines etc – items that would not be posted to the P&L account). To be fair, for small companies not spending hundreds of thousands of pounds a year on this kind of kit, the tax breaks were already quite generous – under the existing rules, more often than not, a new computer would be fully written off for tax purposes in the year it was incurred. However, the super-deduction goes above and beyond the usual 100%, and for a short while will generate a deduction of 130% between 1 April 2021 and 1 April 2023.
As an example a £3,000 piece of (qualifying) equipment would previously have been awarded a 100% deduction covered by the Annual Investment Allowance (AIA): at 19% that is £570 of company tax saved. The super-deduction would, at 130% x £3,000 x 19%, offer an extra £171 of tax saving – not bad!
Occasionally, capital expenditure (Capex) does not qualify for the usual AIA (also known as First Year Allowances (FYA)): things like integral features (lifts/escalators/wiring) and long life (>25 year) assets. These will now qualify for a 50% FYA as opposed to 6% annual writing down allowance. So on a £3,000 electrical wiring project, the corporation tax saved is now £285 compared to £34. Proportionately favourable, albeit less commonly seen.
There are some exclusions in the fine print which to us are fair enough: most notably the expenditure cannot be on second hand kit.
Assets acquired via Hire Purchase can qualify and when expenditure straddles the cut off dates, the super-deduction is time apportioned (again, seems fair to us).
Commercially, day to day Capex will not be subject to much planning (if any)…when the blue screen of death strikes, it’s simply time for a new laptop. However, if you are planning any more significant spending then these dates above should definitely be taken into account. Get in touch and we can walk you through the fine print and quantify the kind of tax savings you can expect to make.