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