Business investment is still lagging, however economic uncertainty
and high costs mean caution is understandable. Although inflation is
eating away at cash reserves, businesses can make efficiency gains from
new IT, plant, and machinery – and there’s a bonus tax break in
investment due to expire on March 31st. Is super-deduction the nudge you
need to get your business fit to survive?
- Super-deduction adds 30% to many capital investments in your business when calculating tax liability.
- The tax break for IT, plant and machinery ends on March 31st
- If you were hesitating to buy new kit – which could make your business more efficient or competitive – the deadline could be the nudge you need.
The ongoing challenges in the UK economy have dampened many businesses’ appetite for investment. According to the latest Deloitte CFO survey, 62% of businesses are planning to lower capital spending this year. And there’s no doubt that keeping a cash cushion is a smart move when the economy is unpredictable.
The problem is that the value of that cash ‘insurance policy’ falls when there’s inflation in the system. With corporation tax set to rise from 19% to 25% in April, many businesses will see the amount they can add to their cash cushion dwindle quickly.
Against this challenging backdrop, there is one ray of light. It’s called ‘super-deduction’ and it means that any money you spend between now and the end of March on qualifying plant and machinery, can be claimed back from profits (meaning it’s not taxed) at more than 100% of the cost.
In fact, the scheme has been in place since April 2021, and was designed to boost business investment post-pandemic. However, the war in Ukraine, energy crisis and continued global supply chain woes have stalled business confidence and subsequently, investment.
A good time to invest?
1. Take advantage of the super-deduction tax break. Right now, you can claim back 130% of the value of investment in plant and machinery. Let’s say you invest £100,000 in a new IT set-up before the end of March. When your profits are calculated, you deduct £130,000 from the taxable total – not £100,000.
The tax reduction thanks to that investment would be £24,700. £5,700 of this amount is down to that extra 30%. Remember, if your total profit is lower than £130,000 (as in this example), you can carry forward the tax loss into the next year.
Qualifying investments include plenty of plant and machinery that regularly needs to be upgraded or replaced. The super-deduction covers computer equipment and servers; tractors and vans (and electric vehicle charge points – but not company cars); ladders, drills, cranes, and other construction equipment; office furniture; and refrigeration units.
2. To increase efficiency. New equipment might be a capital outlay, but in many cases, like refrigeration units, new kit will be more energy efficient or more capable than older gear. With energy prices likely to remain high for some time, anything that boosts your business’ overall energy rating is good news. And new kit means lower maintenance costs – whether that’s your old server chugging away in the corner, or a low-loader with gearbox problems. (Super-deduction doesn’t apply to second-hand equipment, so buying older, less efficient assets isn’t an option).
3. To increase competitiveness. There’s two ways of looking at the year ahead. Either things are going to be tough, in which case being more competitive than your rivals to boost market share is going to be a strong defensive move. Or it’s not going to be as bad as everyone thinks – and that means having new plant on hand will either boost capacity or productivity. If you can invest in a computer or machine that frees up staff, it could also help with labour shortages
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With inflation still touching double digits, deploying the cash now means putting it to work rather than seeing its value shrink.
And it does need to be now. The fine detail is for your finance team or accountant to pick over; it might even be worth them double-checking that the paperwork is in order for any
qualifying investments made since April 2021. But the money needs to be paid over to your supplier before March 31st this year to qualify for the super-deduction.
The bad news for sole traders and partnerships is that this only applies to companies. Qualifying companies should speak to professional advisors as soon as possible about whether this opportunity is right for their business.
And remember – even if you can’t make an investment now, past recessions tell us that the companies which invest when times are tough tend to come through the downturn and exploit the recovery much more strongly than those who don’t.
Super-deduction might just be the extra incentive you need to kick off that process now.
This article is designed to provide you with general information only and does not attempt to give you advice on any financial arrangement or to recommend any particular finance to you. You should speak to your accountant about any qualifying expenditure and how it can be processed as part of your taxable profits.
At Capify we offer a range of business loans to help support your business. Whether that be capital to make investments, or finance to aid with day-to-day operations. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.
