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Corporation Tax Super-Deduction - Example

In the March 2021 Budget the UK government announced the new super-deduction allowance. It sounds very catchy, but what are the realities for small/medium sized businesses?

The tax relief works by artificially reducing the taxable profit by claiming 130% of the cost of some qualifying expenditure.

If your taxable profit is lower, your corporation tax bill will be lower.

Who can claim?

Companies.

Sole traders and partnerships are not eligible for the new relief. Please get in touch if you want to discuss the right business structure for you. We wrote a blog discussing the different structures.

Qualifying Expenditure

The 130% super-deduction applies to new (not second hand) "main rate" capital allowance expenditure. Most assets would fall into the "main rate" category:

  • Vans (not cars)
  • Computer/electronic equipment
  • Machinery
  • Fire safety equipment

The expenditure must be incurred between 1 April 2021 and 31 March 2023.

Example

Jimmy owns "Jimmy's Window Cleaning Ltd". He purchased a 2nd hand ladder for £500 and also a brand new van for £15,000.

His profits (before considering the asset purchases were £50,000 for the year)

The ladder was 2nd hand,so does not qualify for the super-deduction. He can still claim £500 of the Annual Investment Allowance.

The new van was brand new so will qualify for the super deduction. 130% of £15,000 is £19,500.

His taxable profit will be artificially reduced by £20,000 (£500 + £19,500) and so his corporation tax liability will be £5,700 (19% of £30,000).

Claiming the super-deduction on the van saved Jimmy £855 of corporation tax, in comparison to the old rules.

The super-deduction and capital allowances are great examples of an area of tax where accountants and tax advisors work well together. Please get in touch now if you want to know more about the corporation tax super deduction.

Photo by Glenn Carstens-Peters on Unsplash

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