In order to re-ignite growth in UK manufacturing post-COVID and post-Brexit, the UK government has deployed a never-seen-before stimulus package, allowing UK companies to temporarily deduct 130% (in year 1) of any new machinery investments. In order to help you navigate and leverage this unique opportunity for your business, we have summarized the key things you need to know below.
130% Tax Deduction
Cut your tax bill with up to 25p for every £1 you invest.
Act Today
This incentive is only temporary – until March 2023.
Boost Manufacturing
Super deduction will help UK manufacturers & fabricators.
Don’t have time now? Download our fact sheet and read it later.
What is Super Deduction?
The Super deduction is a capital allowance for UK companies that offers a 130% first-year relief for qualifying machinery investments until 31 March 2023 (source: HM Treasury).
A “deduction” or “capital allowance” lets taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax-deductible. Businesses deduct capital allowances when computing their taxable profits.
The bottom line, the investment is deducted from your revenues before tax is calculated, meaning you pay less tax.
So while normally* you would deduct the cost of your machine over several years (i.e. every year you can deduct a piece of the investment, partly lowering your taxable income), now you can deduct 130% of the investment (so even more than you paid for the machine!) already in year 1.
*Note that the Annual Investment Allowance (AIA) means that 100% relief can be obtained in some circumstances and it may not necessarily be over several years that relief is obtained.
Why is the UK government providing such a strong stimulus?
Why didn’t HM Treasury stop at a 100% Deduction?
UK economists have identified that much of the UK’s productivity gap is actually attributable to a historically low level of business investments compared to other nations. By offering more generous capital allowances, the UK can boost business investments and reignite economic growth faster.
Who can Qualify?
In short: all UK companies that are investing in qualifying machinery between April 1st 2021 and March 31st 2023.
So what constitutes “qualifying” machinery?
Most tangible capital assets used in the course of manufacturing and fabrication are considered plant and machinery for the purposes of claiming capital allowances. But in order to benefit from the Super Deduction capital allowance the assets need to be new (not second-hand).
Examples of qualifying Machinery
- Fiber laser and plasma cutting machines
- Factory automation solutions
- Tractors, lorries, vans
- IT equipment
- …
But here’s the kicker: there is no limit on the amount of expenditure that can benefit from the Super Deduction capital allowance. Moreover, if the investment creates a loss, the loss would be carried forward to future periods to use against future profits.
Concrete Example
A British company has decided to invest £400,000 in a Fiber Laser cutting machine. Thanks to the super deduction, this company will obtain an additional tax benefit of £85,120 in Year 1. This is a direct cash saving!
The company will pay back this machine over 5 years by paying £80,000 per year. The super deduction (receiving £85,120 extra cash in year 1) essentially means that the company will be able to run the machine without having to pay for it for a full year!
Default Deduction*:
- In translating its accounting profits into taxable profits, the company is required to ‘add back’ any depreciation, but can instead deduct capital allowances called “Writing Down Allowances” (WDAs) at 18% (£400,000 x 18% =£72,000).
- This constitutes a tax benefit in year 1 of £72,000 x 19% corporate tax rate = £13,680
*This doesn’t consider the availability of AIA which could give 100% relief in year 1.
With Super Deduction:
- The company can now deduct 130% of the £400,000 investment (= £520,000) in year 1 from its taxable revenue.
- This constitutes a tax benefit in year 1 of £520,000 x 19% corporate tax rate = £98,800.
- In case this creates a loss, the loss will be carried forward to the next year.
| Default Deduction | With Super Deduction | Tax Year 1 Extra Cash Flow | |
|---|---|---|---|
| Machine Investment | £400,000 | £400,000 | - |
| Year 1 Tax-Deductible | WDAs at 18% (£400,000 x 18%) = £72,000 | Super Deduction at 130% of the investment (£400,000 x 130%) = £520,000 | - |
| Year 1 Tax Benefit | £72,000 x 19% corporate tax rate =£13,680 | £520,000 x 19% corporate tax rate = £98,800 | +£85,120 |
DISCLAIMER: The information we are providing is for illustration only and customers should consult their tax advisors for specific advice, and any reliance on the information is done so entirely at your own risk.
How to apply for Super Deduction?
The Super Deduction will form part of the already existing tax computation for capital allowances.
You’ll just need to provide the usual information* that you do in the form of your fixed asset register which will enable your accounts to prepare the fixed asset information.
*Formal invoice and sales agreement are usually requested; this information needs to be binding, i.e. when you have received this information you cannot roll back the sale.
Upgrade Your Metal Cutting Productivity & Efficiency
Not sure whether to use the Super Deduction incentive to invest in a fiber laser or plasma cutting machine? One of our experts will be happy to advise you on the best solution for your application and business. Click below to learn more about both technologies and our state-of-the-art CNC machines.
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Advanced cutting technologies and intelligent systems produce astounding results. Precision motion control allows you to produce clean, precise, and repeatable cuts.
LASER TECHNOLOGY
For those businesses that need performance and productivity to go hand in hand with high-precision and operator control, we proudly present our flag-ship Photon 5G fiber laser cutting machine.
Ground-breaking axis speeds, an advanced visual nesting system, and a revolutionary CNC interface are just some of the features that make the Photon 5G a new benchmark in laser cutting.
Talk to an Expert Today
Are you ready to upgrade your productivity and efficiency while benefiting from this unique Super Deduction incentive? Contact us today and one of our metal cutting experts will be happy to discuss your specific application and needs, as well as answer any questions regarding Super Deduction you might have.
Esprit Automation is a leading manufacturer of CNC plasma and fiber laser cutting machines in the UK. From our base in Nottingham, we supply a range of advanced sheet and plate metal cutting solutions tailored to our customers’ applications. We deliver machines that are built to last with exceptional quality, first-class service support, engineering expertise, and the flexibility to meet our customers’ needs. All Esprit machines are British-made and we have installed over 1500 cutting machines in more than 30 countries worldwide.
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Q&A
Can I still apply for Super Deduction for a machine bought before April 2021?
A: No, the Super Deduction is only valid for machinery purchased between April 1st, 2021 and March 31st, 2023.
Note that there are restrictions depending on when the obligation to purchase the assets became unconditional. You can only claim allowances when the obligation to pay becomes unconditional, therefore if you can still back out no claim would be allowed.
Is the super deduction also valid on second-hand / used machinery?
A: No, the Super Deduction is only valid for NEW machinery.
What if I agree to a new purchase of machinery, but later on decide to cancel the order?
In case you decide not to proceed with the purchase within the same fiscal year, you cannot deduct the Super Dedication from your taxable income at the end of the fiscal year.
You can only claim allowances when the obligation to pay becomes unconditional, therefore if you can still back out no claim would be allowed.
What if I order a machine this fiscal year (and pay a deposit), but only have to pay the remainder of the sum in the next fiscal year (after machine delivery)?
This is dependent upon the timing of the payments.
Is there a cap on the maximum amount of investments that qualifies for super deduction?
There is currently no maximum allowance for the Super Deduction. In other words, your company will benefit from the Super Deduction on every single capital investment (eligible under the Super Deduction Incentive)) made between April 1st 2021 and March 31st 2023.
DISCLAIMER: The information we are providing is for illustration only and customers should consult their tax advisors for specific advice, and any reliance on the information is done so entirely at your own risk.
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