In The News

Super deduction

Article Date: 04 March 2021

The most difficult part of being a Chancellor and releasing the purse strings to allow business to grow is how much to release and in what way. Historically the use of capital allowances and enhanced capital allowances has proven most attractive and many motor dealers have benefited from this over the years buying premises and upgrading existing premises.

In the place of enhanced capital allowances, we now have “super deductions”. They are still capital allowances but their impact is significantly more beneficial in tax terms.

They apply for all Qualifying Expenditure incurred from 1 April 2021 up to and including 31 March 2023.

They operate as follows;

  1. 130% first year allowance on additions that ordinarily qualify for 18% main rate writing down allowances
  1. 50% FYA on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances (integral features e.g. air-conditioning and air cooling systems, hot & cold water systems, electric lighting and power systems)

This means that for every £100,000 spend you could have a tax deduction of £130,000 (£24,700 less tax to pay) or £50,000 tax deduction (£9,500 less tax to pay).

This kind of capital investment relief is unheard of in the UK and is far more generous than in any other comparable economy throughout the world.

So what can you buy to obtain the super deduction?

It is probably easier to tell you what is excluded;

  • used and second-hand assets
  • expenditure on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021.
  • cars
  • connected party transactions
  • provision of plant and machinery for leasing

 There are as you might imagine rules that must be adhered to such as;

  • plant and machinery expenditure incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief
  • rate of the super-deduction will require apportioning if an accounting period straddles 1 April 2023 based on days falling prior to 1 April 2023 over the total days in the accounting period (end up with a reduced percentage but this is only applies to the 130% not the 50%)
  • Detailed rules for disposals:
  1. disposal receipts should be treated as balancing charges (taxable profits), instead of being taken to pools
  1. where asset qualified for 130% deduction disposal value takes the disposal receipt and applies a factor of 1.3, except where disposals occur in accounting periods straddling 1 April 2023, resulting in a factor lower than 1.3 (this rule does not apply to the 50% first-year allowance for special rate expenditures)

Summary

The hope is that business will invest, invest, invest and I am sure that this will spark off a number of acquisition strategies in dealerships who are looking to use this tax advantage to add a shine to a long-term strategy of growth.

This might also be the catalyst for those of you who are looking to exit in the coming years?

Please get in contact with ASE at chris.cummings@ase-global.com if you would like to discuss this in more detail.

Or visit our LinkedIn page for more info:https://www.linkedin.com/company/ase-plc/

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