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New super tax deduction for UK businesses

Businesses planning to purchase new equipment could be entitled a new government super tax deduction of 130%.

The government announced that from 1st April this year, companies can benefit from capital allowance reliefs including a super tax deduction on certain capital assets.

It is a temporary incentive running until 31st March 2023 and is part of Rishi Sunak’s plan to boost the economy with the hope that it will help companies grow after investing in capital assets.

Manufacturing firms are likely to take advantage of the new scheme, but it will also benefit other industries as items such as office furniture and technology equipment are included under the incentive.

It is a huge boost to firms which have been impacted by the pandemic and according to the government, will allow companies to save 25p for every £1 invested.

What can you claim?

Businesses have until 31st March 2023 to claim the incentive which could result in tax savings of more than £1 million for companies which are planning large investments.

Portia Pierrel, a director at multinational firm PricewaterhouseCoopers (PwC) explained: “The ‘super deduction’ represents a new increased temporary tax relief for companies who invest in certain qualifying capital assets from 1 April 2021 and is anticipated to stimulate £25bn in business investment in the UK. It is expected to benefit capital intensive businesses, such as manufacturers and utilities companies in particular.

“This measure will allow a temporary first-year allowance, including a super-deduction of 130% on most new plant and machinery investments which would have ordinarily qualified for 18% relief, and a first year allowance of 50% on most new plant and machinery investments which would have ordinarily qualified for 6% relief. This will provide not only an accelerated timing benefit but additional tax relief on expenditure incurred. For example, we anticipate a manufacturer incurring £10m of expenditure on a new factory to receive an additional £1m of cash tax saving over the two-year period the measure is in place. “

What is classed as plant and machinery?

The incentive can be used against a range of plant and machinery and most capital assets fall under this bracket. The government provides some examples, these include:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment

(Source Gov.uk)

Unfortunately, the incentive cannot be used on plant or machinery which is leased by a company, which also includes car leasing.

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