It’s quite apparent in the economy at present that investing in your business is tough, ongoing challenges such as the rise in inflation, energy crises, and the war in Ukraine, have put a strain on cash reserves in a lot of businesses.
Any spare cash within a business now will likely be put aside as a safety cushion to tackle any further rises in energy bills, supplier costs, and fuel prices to name a few, however, there is some good news in the form of Super Deduction Tax Allowance, but it’s about to run out. So, let’s look at how this scheme could in fact help your business thrive in these uncertain times.
What is Super Deduction Tax Allowance?
Super Deduction Tax Allowance is a scheme created by the government to allow businesses to invest in qualifying plant and machinery and claim back from profits (meaning it’s not taxed) at more than 100% of the cost. The Super Deduction allowance allows the purchaser to offset 130% of the original capital cost against that year’s taxable profit.
Even assets purchased through Business Loans or Hire Purchase qualify for the scheme.
The scheme has been in place since April 2021 and is set to expire at the end of March 2023. It was created to try and boost business investment after the pandemic, however, there have been many incidents since that have put a stopper on business confidence and investment.
The budget that took place in 2021 which brought about Super Deduction tax Allowance, was also the result of three more measures that could benefit businesses in today’s economic climate-
- A 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023 for companies
- An Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to a £1m threshold, until 31st December 2021
- Access to new Enhanced Capital Allowances (ECA+) within Freeport tax sites where companies, individuals and partnerships can benefit from an increased level of Structures and Buildings Allowance (SBA+) for investments until 30th September 2026
This type of scheme falls under the term Capital Allowances, and they are a way of letting taxpayers write off the cost of certain capital assets against taxable income. The Super Deduction Tax Allowance along with the 50% first-year allowance can help investment for companies to lower their corporation tax bills
Why the government introduced Super Deduction Tax Allowance
The Covid-19 pandemic saw a huge drain on the UK’s business economy and investment levels had fallen significantly, resulting in a reduction of 11.6% between 2019 and 2020. In the UK we have a historically low business investment rate compared to other parts of the world, so this didn’t stand us in good stead through the pandemic and has played a significant role even pre-pandemic.
The government wanted to stimulate business investment by making capital allowances to promote economic growth and by giving companies a strong incentive to make additional investments, such as the Super Deduction Tax Allowance.
Increase efficiency and competitiveness
While the road ahead for business may be tough, increasing your competitiveness could be a strong move to boost your market share, investing in new plant and machinery could do just this. Acquiring new computer equipment, equipment such as compressors, refrigeration units, vans, lorries, tractors, whatever your business, upgrading or acquiring new plant and machinery could be a strong defensive move against the competition.
While this scheme is great to acquire new equipment it is also a good tool to use to tackle the rising cost of energy prices. Investment in solar panels and electric charging points is also covered through the scheme and is a great way to improve business energy rating and lowering maintenance costs.
Seek professional advice from independent business finance broker
We understand that taking the leap to invest in such turbulent times is extremely difficult and navigating your way to the right decision is a tough road to travel. It doesn’t help that a deadline to take advantage of something that could potentially pull your business through these difficult times is looming.
It will be interesting to see if the Chancellor extends the Super Deduction Capital allowance in the forthcoming budget.
At PMD, we pride ourselves in offering more than finance, advice and ideas are the lifeblood of our business. Our experienced advisors can chat with you about navigating these turbulent times and help you to understand the pros and cons of investment at this time.
If investment is something you want to consider by taking advantage of the Super Deduction Tax Allowance scheme, then our finance team is on hand to help you every step of the way. We are alternative business finance brokers and liaise with over 150 lenders to ensure the hard work is taken of securing business finance.
Get in touch with PMD today to see how taking advantage of the Super Deduction Tax Allowance scheme could help your business thrive in times of uncertainty and chat through business finance options that can help your business to grow without limits.