In the 2021 Spring Budget, Chancellor Rishi Sunak announced an investment incentive, referred to as the super-deduction. From April 1, 2021 to March 31, 2023, companies will receive a 130 per cent deduction against taxes for new plant and machinery purchases. Here Steve Breen, General Manager of Construction Industries at exclusive Caterpillar dealer Finning UK & Ireland, explains why there is no better time to upgrade your fleet.
The Chancellor referred to the super deduction as the biggest business tax cut in modern history, since this is the first time capital allowances have been available at over 100 per cent, representing a substantial bonus for companies planning on investing.
Since the start of the COVID-19 pandemic, already low levels of business investment have fallen, with a reduction of 11.6 per cent between Q3 in 2019 and Q3 in 2020. In response, the UK Government has introduced the super-deduction, alongside other capital allowances such as 50 per cent first-year allowance for special rate assets, annual investment allowance (AIA) and enhanced capital allowances (ECA+). However, with so many new schemes introduced, businesses might be unsure of how to make the most of them.
What is the super-deduction?
Companies can now claim 130 per cent capital allowances on qualifying plant and machinery investment, which means that, for every pound they invest, their taxes will be cut by 25 pence. Previously, the tax deduction was capped at the cost of the investment, and relief was deferred over a longer period at 18 per cent depreciation per annum.
This means that, before the incentive was introduced, a piece of equipment costing £100,000 would qualify for a first-year tax deduction of £18,000, resulting in a first-year tax saving of £3,420. With the super-deduction, the same piece of equipment would qualify for a tax deduction of £130,000, leading to a saving of £24,700.
What qualifies?
Before making a purchase, it’s important to know whether it qualifies for the new tax relief. The super-deduction can only be used with acquisitions made between April 1, 2021 and March 31, 2023. It’s not available for equipment delivered in March, as well as customer contracts, such as invoices and purchase orders, entered into before March 3, 2021. It only applies to new equipment, so second-hand purchases, or rebuilds, will not qualify.
Despite the clear benefits, it’s understandable that many businesses aren’t in a position to make a large initial upfront payment right now. However, the super-deduction can be used in conjunction with some of Cat Financial’s financing offers, so it’s worth speaking to our team to find out more.
With the opportunity to receive a larger write off in the year of purchase, plus an improved return on investment, reduction in cash taxes and the ability to recover the initial cost of the equipment more quickly, there really is no better time to upgrade your fleet or purchase your first machine. To find out more about the equipment that Finning has to offer, visit http://www.finning.com/en_GB.
The information is of a general nature and is not intended to address the circumstances of any particular customer. You should seek your own professional tax advice to confirm your individual circumstance and treatment.
