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Use it or lose it – end of Super Deduction is on 31 March 23

There’s no such thing as free money as we all know, but there is some money which is free-er (is that a word?) than others and this is coming to an end imminently!

The end of the super deduction for capital expenditure is nigh. It was only ever supposed to be a temporary measure as part of the government package designed to support businesses through the pandemic whilst incentivising investment in new plant and machinery. (With the intention of boosting economic growth and productivity, for those of you that are wondering why?)

Cars, buildings and land are all exempt, but the tax relief applies to tangible assets used in the course of business such as machinery, equipment and furniture… and there is still a week or so to benefit if you need to make a such a purchase, and can meet the eligibility criteria including:

  • Qualifying plant and machinery is bought new – not second-hand
  • The investment is for plant and machinery used in the UK
  • The machinery is not purchased for lease or long-term letting
  • Investment is made before the end of 31 March 2023

The amount of the super deduction is limited to 130% of the cost of the investment. So if you invest £10,000 in qualifying plant and machinery, your business can claim a deduction of £13,000 against its taxable profits. But do check in with your accountant about the eligibility of your purchase, and what you will be able to claim! 

Of course this public service announcement is not an invitation to make wild purchases in the next 10 days – but if your business really needs new laptops, printers or desk chairs – it’s worth getting that order in now.

As of 1st April, we’ll revert to the standard capital allowances regime for businesses, which provides a lower rate of tax relief on qualifying capital expenditure. Of course if you’re worried about this increasing your business’ tax bills because you’ve relied on the super deduction to reduce your tax liability, it’s worth discussing this with your accountant. (I’ve been working with my clients to prepare for this change, as we’ve known it’s coming.) 

There might be other tax reliefs that you can benefit from. For example, the Annual Investment Allowance (AIA) which allows businesses to claim 100% tax relief on qualifying capital expenditure up to a certain threshold. You might be able to use the AIA or other tax reliefs to offset the impact of the super deduction ending. And of course there’s the announcement in the latest budget around ‘full capital expensing’.  This is another post we’ll look at but it’s pretty much as you were for most with 100% (i.e. the same as the AIA).

Failing that, you could think about financing options, such as leasing or hire purchase, to spread the cost of capital expenditure over a longer period. This could help to improve cash flow and reduce the immediate impact of the super deduction ending.

Going forward, my top tip is to review your tax planning strategies on a semi-regular basis anyway, to ensure that you are making the most of all available tax reliefs and allowances. We can, of course, help with this, so drop us a line if you’re interested.

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Huw Moseley