Super-deduction tax break – what is it and how does it work?
The super-deduction tax break means that you can claim 130 per cent of what you spend on IT equipment and digital transformation projects for your business against taxable profits.
What is the super-deduction tax break?
The super-deduction £25bn tax break, announced in the budget is intended to spur investment by providing 25p off company tax bills for every pound of qualifying expenditure.
Rishi Sunak told Parliament on March 9 that he believed his super-deduction corporation tax relief will not only bring forward business spending for two years but “will increase the amount of investment as well”.
At its peak, the super-deduction will raise the level of business investment by 10 per cent, or roughly £20bn a year, according to the Office for Budget Responsibility (OBR).
How the super-deduction works
The super-deduction offers 130 per cent first-year relief on qualifying investments from April 1 2021 until March 31 2023 for companies.
For most business equipment, there will be a super-deduction of 130 per cent of the expenditure incurred. This will mean that on a spend of £100,000, the corporation tax deduction will be £130,000, giving corporation tax relief at 19 per cent on £130,000, which is £24,700.
Normally such expenditure would either fall within a company’s annual investment allowance and produce relief of only £19,000 or alternatively be tax-relieved at 18 per cent of the cost per annum.
What equipment can I claim super-deduction against?
The kind of assets that qualify for the super-deduction include but are not limited to:
· Digital Transformation Projects
· Computer equipment and servers
· Office chairs and desks
· Electric vehicle charge points
· Refrigeration units
· Foundry equipment
Can I claim super-deduction if I use asset finance?
Yes, you can. However, there are “additional conditions” to satisfy, but these are there to ensure that the benefit of the super deduction go to the business customer rather than the lender, and that does not mean hire purchase cannot be used.