Can I benefit from Super-deduction tax relief?

Super-deduction allows businesses to claim 130% first-year tax relief, in the form of capital allowances on qualifying assets, and you still have a year to take advantage.

It means that for every pound that that you spend on qualifying assets, up to 25p can be deducted from your corporation tax bill. In other words, if you’re planning to review your IT infrastructure and investment, now is the perfect time to take action.

Hardware, servers and software can all qualify for super-deduction, if the assets are new and the expenditure on these assets is incurred between 1st April 2021 and 31st March 2023. Qualifying assets must be used to generate income, driving long-term profitability. Super-deduction can apply to both cash and financed purchases.

Why has the Super-deduction been introduced?

Due to the COVID-19 pandemic, business investment in the UK between Q3 of 2019 and Q3 of 2020 shrank by 11.6%. Low business investment plays a significant role in slowing down productivity growth and has done so since the recession of 2008.

The government has therefore made generous capital allowances in order to stimulate business investment. This will be a strong incentive for companies to make additional investments or bring future investment plans forward.

As a result of this, business cycles will be counter-acted and the economy should grow, eventually returning to its pre-COVID state-of-health.

How does Super-deduction work?

A company can benefit from these capital allowances either when they purchase a qualifying asset in cash, or if they acquire it through asset finance, where they are guaranteed ownership (title) during the finance agreement.

This is how the Super-deduction is calculated:

Company spends £100,000 on qualifying assets

  • £100,000 x 130% = £130,000
  • £130,000 x 19% (Corp. Tax Rate) = £24,700

This means that £24,700 in tax relief will be gained. Therefore, the company’s annual Corporation Tax Bill will be reduced by this amount.

Want to find out more?

Contact us to understand how super-deduction could be a simple solution to your technology challenges.

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