We have had a lot of questions coming in to the Oxygen team about how they can benefit from the super-deduction tax break, announced by Chancellor Rishi Sunak in his spring budget.
Investments made by businesses will be a key part of the government’s economic recovery plan and this scheme incentivises businesses to invest in new plant and machinery. In this post, we break down how your business can benefit from the super-deduction tax break.
How does the super-deduction tax break work?
Very simply, if you invest in an asset for your business which qualifies under the super-deduction tax scheme, your tax bill will reduce by 130% of the cost of the asset, not 100%.
So, for a £100,000 asset, you will receive tax relief on £130,000 for the cost of a qualifying asset, not £100,000, which would save you £24,700 in Corporation Tax*
*calculated at the current corporation tax rate of 19% (19% x £130,000 = £24,700)
When does the super-deduction tax break start?
The super-deduction tax break is available to help businesses to grow from 1 April 2021 and will run for two years. If you’ve held off from purchasing new assets for your business because of business uncertainty or unavailability of materials, delayed production, then April 2021 onwards is a great time to start to plan the purchase of your new assets.
What benefits will the super-deduction tax break bring for the UK economy?
The Office for Budget Responsibility estimate that the super-deduction will raise the level of business investment by 10% or approximately £20bn a year, so making investment attractive for businesses will be a key part of the UK economic recovery.
What assets are eligible for super-deduction tax breaks?
The following assets apply for super-deduction tax breaks, providing they are a brand new purchase (not used):
Vehicles, including coaches, light commercial vehicles and light commercial vehicles
Equipment for Construction, Waste Management and Agriculture
Assets for Manufacturing, Engineering and Logistics
To find out more about which assets will qualify for super-deduction tax breaks, please visit the government’s super-deduction tax factsheet.
Do cars count as assets for super-deduction tax breaks?
Unfortunately, cars for business use are excluded from the ‘super-deduction’ scheme. The focus is on initiatives to enhance the development and growth of the business, so cars as a ‘non-essential’ business expense won’t qualify for this deduction.
Should I take advantage of the super-deduction tax break now?
There is a huge opportunity for businesses to grow and the super-deductions mean businesses can achieve scale by financing the assets they need within the next two years. The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
What assets should I invest in under the super-deduction tax break?
Make sure that you’re investing in plant and machinery so that the asset qualifies under the scheme. If you’ve been busy during the pandemic and need to replace your equipment due to age or to meet increased demand, then the new tax year is definitely the time to contact the TVAF team to find out more about how asset finance can support your business.
What finance options are available so that I can benefit from the super-deduction tax break?
Oxygen can provide a range of asset finance options to help you benefit from the super-deduction tax break, including:
Hire Purchase – a popular funding choice for many UK businesses to acquire plant machinery and vehicles.
Lease Purchase – ideal if you need an asset for your business and want to keep as much cash available in your business as possible.
Why use Hire Purchase to benefit from the super-deduction tax break?
A Hire Purchase loan allows you to keep cash in your business, and you’d pay the loan off in monthly instalments. Keeping the cash in your business allows you to budget for the repayments and will act as a good source of working capital.
What are the benefits of Lease Purchase to maximise the super-deduction opportunity?
Ideal if you’re looking to invest in a high value asset with low monthly repayments and defer some of the capital until the end of the loan term. As the asset will appear on your balance sheet, you can deduct tax against the asset – in this case 130% of the value of the asset. Again, this allows you to keep cash in your business for working capital, rather than tying it up in assets that have a long useful working life.
What if the assets I need don’t qualify for super-deduction tax relief?
You might need an asset for your business that doesn’t qualify for super-deduction tax relief, or the asset you need might be used, and will therefore not qualify. If that’s the case, you might want to speak to us about a range of other asset finance options, including refinancing loans which are a great way to help you to buy the assets you need whilst keeping valuable cash within your business. Obviously, you wouldn’t qualify for the super deduction tax relief, but the Oxygen team can still help you to secure additional assets for your business with affordable monthly repayments. Remember that even without the benefit of the super deduction there are still taxable benefits to using Hire Purchase & Leasing.
