Our Tax Director, Francesca Hutcheson, has welcomed the announcement that businesses can now benefit from a “super deduction” on new plant and machinery.
Francesca says the policy was one of the few surprises in Chancellor Rishi Sunak’s Spring Budget.
“It’s part of the Government’s drive to encourage firms to take risks and unlock some of the capital they may have built up over the last 12 months during the pandemic.
“Under the new rules, which will apply for the next two years, businesses investing, say, £100,000 in new equipment will benefit from £130,000 of Corporation Tax relief.
“That’s a saving of £24,700 at the current rate of Corporation Tax, so the true cost of the investment is closer to £75,000 when the tax relief is factored in.”
Francesca says the new deduction was almost the same effective rate of relief for big businesses when the main rate of Corporation Tax increases to 25% from April 2023 – assuming there is no extension to the planned two-year time limit on the super deduction measures, but smaller businesses with lower profits would be better off by bringing their spending plans forward.
“There is also a new 50% First Year Allowance available for assets that don’t meet the 130% super deduction such as expenditure on lighting, electrics and plumbing within a property.
“But there are notable exclusions as only companies are eligible to claim the enhanced relief and the measure does not extend to landlords – only to owner-occupiers and tenants.”
Francesca says the super deduction only applied to new plant and machinery, not second-hand equipment, and business owners would face claw back penalties if they disposed of the assets before April 2023.
“Overall, the new policy is a positive move for businesses, particularly those in the manufacturing and construction sectors.
“And the move to introduce the super deduction may motivate them to accelerate their spending plans over the next two years.”
Francesca Hutcheson, Tax Director