- If you are a small or medium limited company business
here in the UK, then lowering your corporation tax bill
is no doubt how you welcome tactic for you
as a business owner.
Introducing the new super deduction
that allows you to do exactly this.
In this video, we will cover
what exactly is a super deduction.
What can you claim for the super deduction.
And how much tax can you save with a worked example.
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The super deduction was announced in the budget 2021
and is applicable from the 1st of April, 2021.
It applies to limited company business owners only,
and unfortunately traditional sole traders and partnerships
cannot benefit from this generous tax incentive.
The super deduction offers 130% first-year relief
on qualifying main rate plant and machinery investments
until the 31st of March, 2023.
So to put things simply,
it can save your company 25 pence in corporation tax
for every one pound invested.
The super deduction fact sheet published by HM Treasury
is a succinctly bullet points there are reasons
for introducing the super deduction.
In the main it's been brought into incentivize businesses
like yours to invest and spend.
And so there can be a stimulus in the economy
after the COVID-19 pandemic.
You can download a copy of the handout absolutely free
by clicking on the link in the description box below.
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At the beginning of April,
we granted early access
to the Accounting & Tax Academy membership site.
In July of this year,
we're opening our doors to everyone.
Our members will have access to in-depth tutorials,
free downloads and exclusive discounts.
And the best part is it's absolutely free to join.
Head to the link in the description box below
to register your interest today.
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So what exactly are qualifying main rate plant
and machinery investments?
Well, there is not an exhaustive list as such,
but the kinds of assets
which may qualify for the super deduction include
but are not limited to computer equipment and servers,
including the laptops and peripherals,
office chairs, desks and furniture, tractors, lorries, vans,
in other words, commercial vehicles,
electric vehicle charge points, refrigeration units,
solar panels.
The HM Treasury handout provides some more detail
on eligibility or different types of investments
or different types of capital allowances.
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Let's explore this question with a numerical example.
Bill runs a limited company called Bill's Media
and IT Services Limited.
In the current year.
Bill purchased 10,000 pounds of office
and computer equipment for his company,
this including laptops, printers and office desk, chair,
and other peripherals.
All the hardware is deemed to have a useful life
of five years maximum.
Bill's Media and IT Services Limited
made 50,000 pounds of accounting profits
in the current year.
And this is after deducting 2000 pounds of depreciation
in the first year of ownership of the office
and computer equipment.
Bill's Media and IT Services Limited corporation tax bill
at 19% or 50,000 pounds amounted to 9,500 pounds
and this is without claiming the super deduction.
So Bill has heard about the super deduction
and decides to approach us for some advice.
It is assessed that the equipment Bill has purchased
is indeed eligible for capital allowances
and hence the super deduction.
The company will get the 10,000 pounds
spent on the equipment as a deductible capital allowance
plus an additional 3000 pounds
as part of the super deduction
giving a total capital allowance of 13,000 pounds.
So we recomputed Bill's Media and IT Services Limited
corporation tax bill as follows.
Accounting profits for 50,000 pounds,
add back the depreciation of 2000 pounds
and deduct 13,000 pounds for the super deduction
gives taxable profits of 39,000 pounds.
And the corporation tax liability at 19%
on the taxable profits is 7,410 pounds.
This has provided Bill's company
with a tax saving of 2090 pounds.
So you can see how powerful the super deduction is.
If you invest in qualifying plant and equipment
that is greater than 10,000 pounds,
then 130% of this will only provide your business
with a larger tax saving.
On average for every one pound your business invests
in qualifying plant and machinery,
it will benefit from 25 pence of corporation tax relief
through the super deduction.
But a word of caution,
don't go and just spend on plant and equipment
just because you'll save some tax through a super deduction,
always make sure there is a commercial justification
for your business.
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I hope this video has helped you understand
how you can lower your corporation tax bill
for your company
and taking you one step closer to knowing your numbers.
As always let me know in the comments,
your thoughts on today's video,
or if there are any topics
you'd like us to cover in the future.
Finally, be sure to like and subscribe
as this video help us to get our content out there.
This is Tony Dhanjal for the Accounting & Tax Academy,
thanks for tuning in.
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