If you aren’t aware of the capital allowance super-deduction scheme, you could be missing out on tax relief for your next IT equipment purchase.
Investing in your business is essential for on-going growth and, thanks to the government’s capital allowance super-deduction tax saving scheme, for a limited period you can purchase certain assets and save on your tax bill while you do it. Here, we outline the scheme so you don’t miss out.
Capital allowances permit organisations to write off the costs of certain assets against their taxable income. The capital allowance super-deduction scheme is intended to supercharge this allowance by allowing organisations to save even more on assets such as PCs, servers, laptops and other IT equipment – but not software.
Qualifying businesses can save 130% on specific purchases in the year they were purchased. This includes all new plant and machinery that would qualify for the 18% main pool rate of writing down allowances.
This means that if a business spends £1 million on qualifying investments and they choose to claim the 130% super-deduction, they can deduct £1.3 million from taxable profits and this deduction will save the company up to 19% (£247,000) on its corporation tax bill.
Capital investments must be made on purchases of new equipment made between 1 April 2021 and 31 March 2023, as these revised rates are only for a limited period, but the allowance does include assets purchased using external finance, such as hire-purchase schemes, so long as payments are being made to purchase the asset and that the business will eventually own the asset. The purchased assets must also be used in the business rather than leased out to customers.
In addition, business can also benefit from a 50% first year allowance on new qualifying equipment that is usually eligible for the 6% special rate writing down allowances, also available until 31 March 2023.
For companies wanting to benefit from these schemes, the good news is that there’s no limit to the amount of investment that can be made.
The economic slowdown during the pandemic has taken its toll on businesses and the economy. Business investment was low before the pandemic, and this has slowed productivity growth for a number of years. Since the pandemic, it has fallen even further, with a reduction of 11.6% in investment between Q3 in 2019 and Q3 in 2020.
The super-deduction scheme means for every £1 a company invests, their taxes are cut by up to 25p. HMRC hopes that these introduced schemes will increase investments by businesses, resulting in a spur to economic recovery.
Understanding how tax rules apply to your business can be complicated. There are rules for claiming the capital allowance super-deduction, such as which assets can be claimed for and clawbacks on the disposal of assets, to ensure that you make the most of any tax relief available to you. So, it’s a good idea to speak to a tax accountant in order to understand how tax relief applies to you.
When making any investment, you want to make every penny count, which means you need to make investments with the greatest impact on your business; investments aren’t for today, they are for the future.
As the technology landscape constantly changes, it can be difficult to know where to make the correct investments to future-proof your business. That is where Syn-Star can make the difference.
Our IT consultancy services and in-house consultants work in partnership with many businesses in different sectors to advise on IT strategy. We know that there is no one-size-fits-all solution, and we will take the time to learn about you and your business to develop the right solutions. These should empower you to capitalise fully on the improvements in efficiency, productivity, savings and competitive advantages that IT can deliver.
If you have been thinking about investing in your IT infrastructure, more information on the government’s capital allowance super-deduction tax relief can be found here.
Now is a good time to benefit from the tax advantages available for this financial year. If you would like to learn more about how Syn-Star can work with you to build for the future, book a no obligation discover call today.
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