All about the super-deduction tax break

All about the super-deduction tax break

The UK Government’s 2021 budget announcement at the beginning of March brought good news for both individuals and businesses. Rishi Sunak announced a range of programmes designed to spur on recovery following the pandemic. As part of these measures, a super-deduction tax break is coming. This allows companies to claim 130% on year one tax relief for machinery and plant purchases. Some call it ‘splash out to help out’. Regardless, this long-running programme will encourage more business investment. It’s great news for UK companies looking to invest in IT & telephony. But you probably have questions. Here is everything you should know about the super-deduction tax break:

What is it?

In brief, it allows any company that pays corporation tax to claim an additional 30% relief on equipment, beyond the purchase cost. Please, read the full text of the measures and the clarifying documentation for more detail. It runs from April 1st until the end of March 2023. And it’s been named the super-deduction. It applies to any new plant or machinery purchases after that April 1st, 2021 start date. 

Here’s an example:

  • Your company spends £100k on IT equipment on April 2nd, 2021.
  • You’d now get a corporate tax deduction of £130k.
  • Your tax relief is now 19% on £130k.
  • That equals £24,700 when it would normally only be £19k.

Be careful, however. Do not make an investment in equipment with the goal of selling it again quickly. You’ll have to pay back the super-deduction and you’ll probably have to contend with 25% corporation tax too.

What kinds of equipment qualify?

Any business equipment will qualify if it’s purchased within the scheme window. It just needs to be new. It must be owned or ‘able’ to be owned. So, if it’s a hire purchase, it has to be a rent to buy agreement. And it can’t be part of a larger existing purchase agreement or drawdown. According to Computer Weekly, “HMRC said that  IT equipment like computer hardware is within [the] scope of the super-deduction, provided its qualifying conditions are met. For instance, the equipment must be new and unused. In subscription-based purchases, HMRC said the super-deduction would apply based on the contractual terms. For example, the allowance is not available for expenditure incurred as a result of a contract entered into on or before 3 March 2021.” So, that means our phone systems and other IT equipment qualifies for the super-deduction. If you’re unsure if your next purchase is covered, talk to your accountant or inquire with HMRC directly.

What about hire purchase?

More than a third of companies use hire purchase on equipment investments.

Hire purchase qualifies so long as:

  • You’re paying a rental fee.
  • You can exercise an ownership clause.
  • You received the goods and incurred an expense.

At Stride Communications, we’re grateful for this new investment into the economy. Future-proofing your business for a post-COVID landscape is critical to long-term success. If you’re thinking about making investments in your IT & telephony; let’s discuss your options.

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