Since the 2021 UK Government’s budget announcement, we’ve learned more about the programmes meant to encourage the economy to recover. Furlough is carrying on to September and the self-employed will receive more grants. But perhaps the most exciting news is the new super-deduction. This allows entities that pay corporation tax to claim 130% on year one purchases. Now, only plant and machinery equipment apply if it’s purchased within the scheme window. But we’re delighted that IT & Telephony purchases count towards the super-deduction. If you have questions about this new tax break, we’ll share all the details below:
What’s the tax break?
Normally, you’d only claim 100% relief on new equipment purchases. So if you spent £100k, you’d get £19k of tax relief. But, under the new measures, that £100k spend counts at £130k. So you’ll now claim 19% on the larger figure. That results in £24,700 of relief. It’s a significant increase. These deductions start on April 1st, 2021. And they run until March 31st, 2023. Get in now before taxes rise. According to FT, “The corporation tax increase in 2023 from 19 per cent to 25 per cent will raise £17bn a year, ensuring that corporate profits are taxed more heavily in Britain than in most other advanced economies, once allowances and deductions are included.”
What can I buy?
Anything, really. It just has to meet a few conditions:
- It must be purchased within the scheme window.
- It’s for plant & machinery equipment.
- It can’t be used.
- If it’s a hire purchase, there needs to be an ownership clause.
- It can’t be a drawdown or part of an umbrella equipment package.
That means everything from IT equipment to sound systems could qualify. Chat to your accountant if your planned purchases are included. However, don’t plan to sell quickly. According to Small Business, “Companies looking to use this relief will need to take care when the assets that the expenditure relates to are sold: tax charges may then arise clawing back the relief. It is perhaps worth noting that certain expenditure is excluded, in particular the acquisition of company cars.”
What about hire purchase?
Hire purchase is a popular way for corporations to make investments in new equipment.
It will qualify for the super-deduction if:
- You have possession of the goods and could own them at some point.
- You pay a fee as the receiver of the goods.
The relief is meant to help the small business customer, not the leasing company. So, don’t plan to use this deduction if you lease goods to other organisations. It’s meant to give aid to the receiver of the goods who is paying the leasing contract.
If you’d like to make investments in your IT & telephony, let’s talk. We think this super-deduction will make an IT equipment purchase from April 1st a more attractive proposition. Let us help you prepare your business for the post-COVID future with a robust infrastructure.