No company wants a huge tax bill – especially when it’s the hefty flat rate of Corporation Tax. But this year’s Government Budget was met with a warm welcome from every company that pays corporation tax – and it’s all to do with the new rules around ‘Super Deduction’.
So what does that mean? Let’s get into it:
What is Super Deduction?
Historically, businesses have been able to claim capital allowances when they invest in new equipment, vehicles, or machinery. The value of your investments gets deducted from your profits, helping you to save money on your taxes.
The new Super Deduction scheme adds a massive boost to the capital allowances you can claim – giving you tax relief on up to 130% of the value of the equipment you buy.
For the next two years (from 1 April 2021 to 31 March 2023), you’ll be able to save money on your corporation tax at a rate that’s higher than usual.
It’s the biggest incentive the Government has ever come up with – with an effective saving of 25p for every £1 you spend.
And that means there’s never been a better time to invest in new equipment for your business.
Who can use Super Deduction?
Super Deduction is fantastic news for any business that’s buying new equipment or machinery. And if you’re running a vehicle-based workshop, garage, or depot, that probably means you.
But there are some conditions you need to watch out for. In particular, the Super Deduction scheme only applies to:
- Businesses that are subject to corporation tax – which means sole traders and partnerships won’t benefit
- Businesses that intend to keep their equipment – if you sell your new equipment after claiming with Super Deduction, you might have to pay a penalty later
- And businesses ‘buying’ inside the right period – if you’re spending money on equipment through a contract that started before April 1, 2021, you won’t be eligible.
That covers the basics. But when it comes to taxes, there are usually a few extra details that need to be considered. So before you leap into a spending spree, always talk to your tax advisor or your accountant to make sure you can get the savings you’re expecting!
What kind of equipment counts?
The original rules around capital allowances deal with ‘plant and machinery’ – items that you keep to use in your business.
And for most workshops, that covers just about every piece of equipment you’ll need – from vehicle lifts or brake testing equipment to the everyday supporting tools like access steps and vehicle jacks.
But with the new Super Deduction rules, there are some exceptions. You won’t be able to claim the benefits of Super Deduction if you’re buying:
- Second-hand or used equipment
- Or ‘integral features’ and life-long assets – such as lighting systems, powered ventilation systems, or cold water systems.
You’ll also have to watch out for any new equipment that you buy under a ‘hire purchase’ agreement (or any similar contract). These do qualify provided they fall within the two-year period stated above.
However, if your hire purchase agreement falls outside of the two-year Super Deduction period, you won’t be eligible for the extra saving. So just like everything else tax-related, you should always check with your accountant first.
What can you save with Super Deduction?
With the formalities out of the way, it’s time to get into the real meat of the good news: the potential for your business to save some serious money.
Let’s start with a simple example:
The new rules let you claim 130% of your spending as a capital allowance.
If you spend £16,000 on new equipment, you can offset £20,800 against your taxable profits.
At the current Corporation Tax rate of 19%, that means a tax saving of £3,952.
And the result?
You’ve effectively bought a £16,000 item for just £12,048 – that’s a saving of nearly 25%!
The more new equipment you buy, the more you’re effectively saving. Here’s how the tax benefit works out at different levels of spending:
|You normally pay:||£16,000||£60,000||£100,000|
|Your tax benefit:||£3,952||£14,820||£24,700|
|You effectively pay:||£12,048||£45,180||£73,300|
And if you’re looking for the magic formula to calculate the tax benefit for any new purchase, here it is:
Your effective saving = The cost of your equipment x 1.3 x 0.19
In simple terms, that means you’ll be able to save 25p for every £1 you spend on new equipment – which means there’s never been a better time for your business to upgrade and replace the machinery you need.
Ready to dive into some serious savings?
The new Super Deduction rules apply from April 1, 2021 to March 31, 2023 – which means any purchases on eligible equipment over the next two years are effectively 25% off.
And we’re happy to report that every piece of Totalkare equipment is eligible for this massive saving.