ImagesMagUK_September_2021

BUSINESS DEVELOPMENT www.images-magazine.com 36 images SEPTEMBER 2021 What’s the ‘super deduction’ in tax for companies investing in equipment, and how does it work? I n the 2021 Spring Budget, Chancellor Rishi Sunak introduced a new super deduction of 130% for companies investing in new items of plant and machinery. The super deduction is designed to encourage businesses to invest over the next two years and to give the post-Covid economy a boost. This new relief will allow companies to save up to 24.7 pence in corporation tax for every £1 of capital investment made in plant and machinery. The super deduction provides a real opportunity for the textile industry to make significant savings on investment in new screen printing or embroidery machinery. The government has for many years offered a valuable tax relief for businesses investing in plant and machinery. That relief is obtained via capital allowances in the company’s corporation tax return and allows the cost of certain new assets to be offset against a business’s taxable profits at a rate of 130%. Prior to the super deduction, most businesses enjoyed a 100% tax relief in the year of spend for the first £1 million of qualifying expenditure through what is called the annual investment allowance. Available until 31 March 2023 The super deduction effectively allows a company to offset 130% of qualifying spend against its taxable profits. This means, for example, that if a business were to buy a new embroidery machine or IT equipment for £100,000, it would be able to claim £130,000 against its taxable profits and therefore generate a tax saving of £24,700 – the ‘super’ being the relief obtained being greater than the original expenditure. The relief is available for the acquisition of new plant and machinery incurred between 1 April 2021 to 31 March 2023. The super deduction is only available to companies and is not available to sole traders, partnerships and limited liability partnerships. It can only be claimed on new equipment and cannot be claimed against equipment that is leased. Importantly, cars are excluded from the super deduction. Where your accounting period spans 1 April 2023, the rate will be apportioned based on the days prior to this date over the number of days in the period. If we use a 31 December 2023 year end as an example, the super deduction will be 107.4%. Anti-avoidance provisions are also included within the rules to counteract any transactions lacking a genuine commercial purpose or those trying to abuse the relief. Qualifying expenditure HMRC is generous in what it considers qualifying expenditure and includes: ■ Computer equipment and servers ■ Tractors, lorries, vans ■ Ladders, drills, cranes ■ Office chairs and desks ■ Electric vehicle charge points ■ Refrigeration units ■ Compressors ■ Foundry equipment While not expressly referenced, companies in the textile and garment sector wishing to purchase new printing, embroidery or manufacturing equipment will qualify. Any proceeds received on sale of an asset which qualified for the super deduction will not be taken to the capital allowances pools, but will instead be a taxable receipt, which is then multiplied by a factor of 1.3. This potential clawback of the relief should not pose too much of a problem to companies as most assets will have significantly fallen in value by the time the asset is sold. With no cap on the amount of relief available, the super deduction is being welcomed by companies who can bring forward capital investment and have plans to expand. The relief provides a significant cash advantage for businesses and will help to strengthen cashflow at a critical time. If you are planning on capital investment, then timing will be key to ensure you can benefit from the super deduction and other first year allowances available. Expert advice on the business of running a garment decoration company Q&A Sam Jones is a senior manager in the corporate tax team at accountants Kreston Reeves, which advises dynamic organisations, private individuals and families on their business, tax, legal and wealth needs. The firm has offices in London, Kent and Sussex, and employs over 550 people, including more than 50 partners. www.krestonreeves.com