Reduce your corporation tax bill if you buy assets – Super-Deduction
The government wants to encourage companies to invest in assets to help them expand and improve productivity. In order to do this, they are allowing a 130% “Super-Deduction” capital allowance for qualifying plant and machinery. You don’t have to claim it – but why wouldn’t you?
How does it work?
Your company buys a qualifying asset. This is entered into your accounts in the normal way. However, when it comes to calculating your corporation tax, you can deduct 130% of the cost, reducing your taxable profit by an extra 30% of the cost.
As an example:
Under the old system, claiming AIA (Annual Investment Allowance), where the taxable profit is £100,000 and this is after allowing for an asset costing £20,000, the corporation tax would be £19,000. If Super-Deduction is claimed, the taxable profit is reduced by £6,000 (30% of the £20,000 asset cost), making it £94,000. This reduces the corporation tax payable to £17,860.
The first point to make is that this is for companies subject to corporation tax. Super-deduction is not available to sole traders or partnerships. They can still claim 100% allowance using AIA.
Secondly, the Super-deduction isn’t available for the purchase of second-hand equipment or for equipment which will be leased to others. (AIA is still available for these assets).
There are other criteria which could apply so the advice is to “ask before you buy”.
Types of Asset
Any Plant & Machinery including manufacturing equipment, commercial vehicles, tractors etc. It does not apply to cars or buildings. Just a reminder that the asset must be new.
Assets bought by Hire Purchase should be fine. Leases are not so clear and a lot will depend on the terms of the lease. The government has been asked for clarification on this point but the assumption is that leases where full ownership is not transferred will not qualify.
Help and Support
“Ask before you buy” is a good thing to remember. We would be pleased to discuss your particular situation and the asset you intend to buy.
One of our team of advisers will be happy to help.
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Phone – 01509 816150
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