How could Super Deduction save you money on capital investments?

Super Deduction is a new policy rolled out by the UK government to encourage businesses to invest in new plants, machinery, and other qualifying equipment over the next two years. 

What makes the new ‘Super Deduction’ so super, you might ask? Well, as happens, there are quite a number of reasons. 

Coming into effect from 1st April 2021, the new Super Deduction will offer tax relief to companies who invest in qualifying capital assets, with expectations to kick-start the regrowth of the UK economy. Since experiencing a drastic decrease of 11.6% in business investment between Q3 of 2019 and 2020, the UK government has been discussing ways to rebuild the economy after the COVID-19 pandemic. 

Chancellor Rishi Sunak stated that these changes would “not raise the rates of income tax, national insurance, or VAT”, but instead would introduce “a tax policy that is progressive and fair”. By offering a more appealing tax relief such as Super Deduction, it is expected that companies will move to increase their capital expenditure which will in turn lead to the recovery of the UK economy following the Coronavirus pandemic. 

Predicted to last until the 31st March 2023, the super Deduction scheme is “anticipated to stimulate £25bn in business investment in the UK” according to Director of PwC, Portia Pierrel, and is “expected to benefit capital intensive businesses” in particular. 

How will the Super Deduction work?

Announced in Budget 2021, the Super Deduction has been designed as a generous tax structure to incentivise companies to invest in certain qualifying assets such as those listed below.

dryer being fed by a friction washer

Examples of Qualifying Assets:

  • Machinery 
  • Plants
  • Office equipment
  • Electric vehicle charging points 
  • Vans, lorries, and trucks
  • Building tools
  • Factory equipment
  • Solar panels 
  • Refrigerators 
  • Compressors

The new scheme will allow companies to claim 130% capital allowances on qualifying main rate plants and machinery, and 50% for plant and machinery in the special rate category. 

In practice, this new measure means that £2.47m of tax savings could be claimed from £10m of qualifying assets, compared to a saving of £497,800 in previous years.In another example, where a company receives a £100k profit and invests £10k in qualifying assets, they will be eligible for tax relief on the amount of £13k. 

What Happens Next?

In Budget 2021, it was also announced that the Corporation Tax would rise from 19% to 25% as of April 2023. In the meantime, the Super Deduction will encourage companies to invest now rather than later. 

This has been causing many companies to prepare a new business approach to align with the new regulations in order to maximise its positive impacts. Sources report that this has already happened to such an extent that share prices in BT had risen by 7% following the 2021 budget speech; perhaps as a result of the anticipated rise broadband claims on capital expenditure. 

We’ve seen a similar correlation at Rotajet, with a marked increase in interest for recycling plants and machinery materialising as we get closer to the 1st April 2021. 

As the Super Deduction is now just around the corner, companies are gearing up to prepare for what is to come. With some businesses pulling deals further up the pipeline to make the most of the new policy, and others putting out feelers for new assets as a direct result of the Super Deduction, one thing is for sure: it’s going to be a busy few years for the manufacturing industry! 

Key Takeaways:

  • The new tax ‘Super Deduction’ will be in motion between (and including) 1st April 2021 and 31st March 2023
  • This new measure has been designed to stimulate economic growth through encouraging companies to invest more widely
  • Companies can claim 130% capital allowance on main rate items, and 50% on special rate items
  • The new scheme will incur a cost of £25bm to the Treasury
  • Qualifying assets including items for company use, including items such as; vans, office furniture, plants, machinery, and work-related tools
  • It is expected that companies will move investments up the pipeline to cash in on the tax relief offering 
  • Corporation Tax will rise from 19% to 25% in April 2023

Rotajet equipment will qualify for these Super Deductions as a main rate asset and could be a great next investment for your business. 

Visit our dedicated websites for recycling machinery, container washing equipment, separation technology, and degreasing machinery to prepare for the introduction of Super Deduction. 

Read our article on the Plastic Packaging Tax for information on what the new plastics tax could mean for your company.