Understanding the New Super Deduction Tax Relief and How It Can Support Your Business… Without All the Jargon!

It’s been viewed as the manufacturing sector’s equivalent to the Eat Out To Help Out scheme that was deployed across the hospitality industry last year. Rather than getting consumers to get out of their houses and dine, however, it’s designed to get businesses back on their feet after one of the most difficult 12 months our economy has ever known – one in which a lot of businesses have suffered a great deal.

So, up steps the super-deduction tax relief, but is it really all it is cracked up to be?

Our team at Advanced Dynamics has noticed that there is a lot of mixed messages about this. There’s also a lot of jargon, jargon that no one has got the time to try and muddle through and decipher. It’s tax relief, not The Da Vinci Code after all.

So, that’s what we’ve stepped in to do. Our in-house experts have analysed exactly what this super-deduction tax relief is, what it’s all about, and whether it really is the saving grace the manufacturing sector needs right now.

And what we promise is an explanation in its simplest form.

Our managing director, Malcolm Little, will also provide his opinion on this subject, combining it with the facts to ensure you – as a business owner – are making the most educated decision possible when it comes to using this new tax relief.

Without further ado, let’s dive straight in!

Q: What Is the Super-Deduction Tax Relief?

A: It’s a £25 billion tax break that was announced as part of March 2021’s new budget reveal and is geared towards helping the manufacturing industry grow again following the pandemic. The super-deduction tax relief will allow companies to cut their tax bill by up to 25p for every £1 they invest.

Q: It’s Been Announced so When Can I Begin Utilising It?

A: The super-deduction tax relief came into force on 1 April 2021 and will run until 31 March 2023.

Q: How Does It Work?

A: The super-deduction tax relief provides 130% first-year relief on the money spent on qualifying main rate plant and machinery investments (we will get into exactly what these are later on).

In its simplest form, and taking that 130% into account, if you spend £100,000 on a piece of new technology for your business, the corporation tax deduction will be £130,000. Given that corporation tax relief is 19% when you take that from £130,000, your business is getting £24,700 back.

Providing your business accounting year runs to 31 March, the super-deduction tax relief calculation could not be more simple.

Q: Can the Super Deduction Tax Be Used on Second-Hand Purchases?

A: The simple answer is no. The investment you’re making has to be on something new or unused. Used equipment has been excluded from this initiative.

Q: What Can Businesses Claim Back On?

A: The documents state plant and machinery investments, but let’s break this down a little more:

Machinery is any device with moving parts, like the filling or capping machines we sell here at Advanced Dynamics. It’s important to remember that these machines do not have to be connected to any form of power either.

Plant, on the other hand, is defined as equipment that a person uses to conduct their business. However, be wary that it DOES NOT include the premises in which a person conducts their business – just the equipment within it.

It’s important to note, too, those plant items must also have an expected life of at least two years and be required for the functions of the business. This includes tech such as computers, laptops, printers, phones, tablets, tool stations, and any large asset that is used in the business.

The government’s fact sheet also lists the following

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

Finally, it is worth pointing out that any equipment that you’re planning to offer for rent is not covered by the main benefit. Equipment that property landlords install in buildings they’re leasing out, such as air-conditioning, are also excluded. 

Q: Are There Any Negative Factors to Be Aware Of?

A: Below is the opinion of our managing director, Malcolm Little. You can read the full blog containing his thoughts on this new initiative here.

“After such a difficult period over the last 12 months, this new super-deduction tax relief is a welcome incentive and will play a significant role over the next two years in helping many manufacturers climb back to their feet and grow again.

“But for many business owners, it needs to be taken with a pinch of consideration. There always has to be a sound business case behind what you want to do when it comes to growth.

“If you’re an owner that had already decided that you want to invest in something for your factory, like a mixer, a printer, a capping and filling machine, dive in. There hasn’t been a better time to do it. If not, though, do not let this new incentive sway you. Ultimately, it isn’t worth it.

“My warning is not to look at this, think it is fantastic, and use it as the single biggest reason for investing. It’s only a marginal gain, one that you won’t see the benefits of for quite some time.

“The truth is it’s not going to make or break projects.” 

Q: Can Any Business Apply For the Super-Deduction Tax Relief?

A: Your business must be paying corporation tax to be able to apply for this new tax relief. The Government’s explainer document also states that ‘unincorporated businesses can claim the full cost of expenditure through the Annual Investment Allowance, up to the relevant limit’. 

Q: I Purchased a Machine Before April, but It Does Not Arrive Until May. Can I Apply Super Deduction to This?

A: Unfortunately not. If you purchased a machine prior to 1 April 2021, you will not be able to claim super-deduction tax relief for it. Curse bad timing on this occasion! 

Q: What Will Happen If I Sell This Item During This Two-Year Period?

A: Don’t bother purchasing a machine for this tax relief if your aim is just to sell it on. You will find yourself having to pay the tax perk back, while corporation tax is also going up to 25%, too.

Do you have another question about the super-deduction tax relief initiative that has not been covered in this article? If so, then please get in touch with our team on websiteenquiry@advanceddynamics.uk and we will get right back to you… jargon-free, of course!