HOW DOES THE NEW GOVERNMENT SUPER DEDUCTION WORK?

To encourage businesses to invest in new plant, machinery, workshop furniture, tool cabinets etc. the Government has introduced the 130% Super Deduction.

Basically businesses can apply a 130% tax deduction on qualifying purchases in year one. This means that if you were to spend £100,000 on, for example, new workshop fit out, you can then reduce your taxable profits by £130,000 in the first year. This will give you a tax saving of £24,700 (19% corporation tax on £130,000).

WHAT PURCHASES CAN QUALIFY FOR THE SUPER DEDUCTION?

Purchases that will qualify for the 130% Super Deduction come under the category of Plant and Machinery which includes:

• warehouse equipment including racking, shelving, forklift trucks, handling equipment
• workshop storage including tools cabinets, workbenches, storage cupboards, cnc tool storage
• office furniture including desks, chairs, meeting pods, storage units etc
• office equipment including computers, laptops, printers, copiers, servers etc
• factory and manufacturing equipment such as CNC machines, compressors, generators etc
• PV and EV equipment such as solar panels and electric vehicle charging points
• Commercial vehicles including lorries, vans, tractors and pickups
• And more – check with your accountant for guidance on specific items

CAN YOU USE FINANCE OR LEASING TOGETHER WITH THE SUPER DEDUCTION?

The answer is Yes you can!  There are additional conditions that must be met for investment in plant or machinery using a finance or leasing scheme together with the Super Deduction.  The interesting thing is that you can make substantial investments using a hire purchase scheme or similar with no cost in year one if you also apply the Super Deduction.

HOW COULD YOU BUY FURNITURE OR EQUIPMENT WITH NO INITIAL COST?

To explain how you could use both the super deduction together with a finance or hire purchase arrangement we have prepared a worked example.

You buy £100,000 of Plant or Machinery.

You use Hire Purchase to finance the investment and spread the cost over 5 years. Typical cost per month would be around £1883. This gives a total cost over 5 years of £112,280

You use the 130% Super Deduction to reduce tax by £24,700 in year 1.

Therefore an investment in qualifying plant or machinery costing £100,000 would cost £88,280 overall. There would be a cash gain of £2104 in the first year followed by expense of £22,596 for the last 4 years.