Rishi Sunak announced the Super Deduction Tax Scheme in the 2021 budget and described it as the biggest two-year business tax cut in modern British history. This scheme allows you to save up to 25p for every £1 invested in qualifying assets.
We’re taking a closer look at the Super Deduction Tax Scheme. What is it, what type of expenditure is eligible, and how does it work?
What is the Super-Deduction?
The scheme allows businesses to claim 130% of the cost of investments made between 1st April 2021 and 31st March 2023 in certain types of equipment against their taxable profits. Companies can save up to 25p for every £1 spent on eligible assets.
Andreia Maia, Head of Finance at OryxAlign, said: “This is a great opportunity for businesses to invest in their IT Infrastructure by reducing their Corporation Tax liability. As we’re fast approaching the end of the Super Deduction Tax Scheme, it’s time to think strategically about current and upcoming needs in IT equipment.”
What expenditure qualifies?
The scheme is available to all companies that pay corporation tax, regardless of size, and applies to investments made between 1st April 2021 and 31st March 2023.
Items that qualify for the Super Deduction Tax Scheme include IT equipment such as, but not limited to, computers, laptops, servers and telecommunications systems, and more traditional plant and machinery equipment such as machinery, tools, industrial and office equipment, plus certain business vehicles.
How does the scheme work?
Here’s a practical example of how it works. This example shows the possible deductions from a company’s taxable profits.
A company with an accounting period ending on the 31st March 2023 purchases new IT equipment on 7th March 2023 costing £2m.
|Tax relief under the “old” rules||Tax relief under the super deduction|
|Maximum AIA available||£1m||Super deduction claim (£2m@130%)||£2.6m|
|Writing down allowances (£2m@18%)||£0.36m|
|TOTAL Capital allowances in year 1||£1.36m||TOTAL Capital allowances in year 1||£2.6m|
|Tax saving at 19% in year 1||£0.26m||Tax saving at 19% in year 1||£0.49m|
In this example, the company can save £235,600 in corporation tax in the year of purchase using the Super-Deduction Scheme.
Please note the rate of the super-deduction will require apportioning if an accounting period spans beyond the 1st April 2023. The rate should be apportioned based on days falling prior to this date over the total days in the accounting period.
At the time of purchase, the equipment must be new and paid for in full. You must also use it for business purposes only. There is more information on the HM Treasury Super-Deduction website and you can click this link to check your Super-Deduction claim.