Have you heard of the Super Deduction?
You have most likely by now heard of the super deduction. An uplifted tax relief introduced by the Chancellor to apply to all purchases of plant and machinery assets bought from 1 April 2021 through to 31 March 2023.
But as we reach the end of this two-year period, do you need to do anything differently and are you clear on the most beneficial timing for your purchases?
Example – December year-end
Let’s assume your company has an accounting year ended 31 December, as many companies do, and that you are investing £50,000 in the coming months on computer equipment.
If you can utilise the super deduction, then it is worth additional tax relief of £15,000 (£50,000 x 30% = £15,000) giving a tax saving at the current 19% corporation tax of £2,850 (£15,000 x 19%).
Now looking at the timing of that expenditure:-
- Spend £50,000 before December 2022
Included on your corporation tax return for the year ended 31 December 2022.
Super deduction allowed in full to give tax saving of £2,850
- Spend £50,000 in January 2023
Included on your corporation tax return for the year ended 31 December 2023.
Still within the super deduction period to 31 March 2023.
However, a hybrid rate applies as the accounting period straddles 31 March 2023, calculated based on the number of days in the period that fall before 1 April 2023:-
Days prior to 1 April 2023 = 90
Total days in period = 365
Pro-rata rate applicable = 107% (130% x90/365 +100% x 275/365)
So the super deduction uplift is only £3,500 (7% x £50,000 = £3,500)
Giving a tax saving of only £665 (£3,500 x 19%) as the expenditure is in the period to 31 March 2023 at the 19% rate
By buying the equipment in December rather than January, the company has saved £2,185
This is only an illustrative example, so please do get in touch to discuss your specific situation to ensure the timing is accurate to maximise your tax relief under the super deduction.
It may also be worth considering changing your accounting year end to end on 31 March 2023, where this is possible, so as to utilise the super deduction in full if you have significant expenditure on assets planned.
If you require further information, please contact us.