Back in March 2021 as part of the spring budget, the chancellor announced a new enhanced allowance for Limited companies that were considering investing in new assets, as a way of generating business stimulus as they come out of the global covid pandemic.
The new allowance in effect increases the value of the equipment when the corporation tax return is processed, by uplifting the value of these qualifying assets by 1.3 times their value.
For example, a qualifying asset worth £15,000 would previously have reduced the profits of the company by £15,000, saving corporation tax of £2,850.00 based on the current tax rate of 19%.
Using the super deduction, the same qualifying asset now has an increased tax based value of £19,500 (130%), which saves corporation tax of £3,705.00, an increased tax saving of £855.00.
There are some points to note about this new super deduction
- It is only available to Limited Companies, Sole traders can continue to claim Capital Allowances as normal
- The scheme runs for 2 years, from 1st April 2021 to 31st March 2023
- Normal day to day plant and equipment, office equipment, warehouse machinery, solar panels, van etc all qualify.
- The exclusions are that the assets cannot be used or second hand, nor from contracts agreed prior to 3rd March 2021, even if the expenditure is after the 1st April 2021.
- Investments in new structures or buildings, or equipment offered for rental, or equipment purchased by landlords with incorporated rental properties does not qualify
- Expenditure on special rate assets such as other integral assets, like hot and cold water systems, will attract a lower 50% rate of tax relief.
- Special disposal rules will be applied to assets that have utilised the super allowance, in that the proceeds received will also be uplifted (for tax purposes), to ensure that the theory matches and like for like treatment occurs.
So if you are contemplating any asset purchases for your Limited company, be aware of the impact that this will have on your corporate tax liability, and that the timing of your purchases can assist in the tax planning process.