130% Super Deductions for those investing in Equipment

the super deduction for equipment in dental practices

The Chancellor’s most recent Budget 2021 announces a 130% Super Deduction for companies looking to invest in new equipment.

This comes in from 1 April 2021 until the end of March 2023, where companies can claim 130% capital allowances on qualifying ‘plant and machinery’ investments. Under the super-deduction, for every pound a company invests, their taxes are cut by up to 25p.

The NEW Capital Allowances offer
As a result of measures announced at this Budget, businesses will now benefit from four significant capital allowance measures:

  • The super-deduction – which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023 for companies
  • The 50% first-year allowance (FYA) for a special rate (including long life) assets until 31st March 2023 for companies
  • Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold, until 31 December 2021.
  • Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+)and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026.

 

Why is the government introducing a ‘Super-Deduction’?

  • Since the Covid-19 pandemic, existing low levels of business investment have fallen, with a reduction of 11.6% between Q3 2019 and Q3 2020.
  • Much of the UK’s productivity gap with competitors is attributable to our historically low levels of business investment compared to our peers.
  • Weak business investment has played a significant role in the slowdown of productivity growth since 2008.
  • Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles.
  • The super-deduction will give companies a strong incentive to make additional investments and to bring planned investments forward.

 

What does this mean for Dental Practices?

Normally – If you take a chair that cost £10k you might say it lasts ten years. It is placed on your balance sheet and you then depreciate it yearly against your profit. Which would mean you take on your P&L £1,000 (£10k/10) a year. This reduces your corporation tax by £190 as it lowers profit.

The new deduction means that if you buy a £10k chair you can still place it on your balance sheet, but you can claim the cost of it in the first year lowering your tax and you can do so at an enhanced rate of 130% of the value.

This will mean that your tax bills are reduced by £10k x 0.19 x 1.3= £2,470. You have therefore reduced your corporation tax by £2,470 vs £190. Meaning at the end of the year you have £2,280 more cash in your pocket.

What the broker slides are suggesting is that this is even better as it still works with hire purchase. So in fact Year 1 you might even be quids in as you don’t have to fork out the extra £10k.

The full detail is still to come out. However, see further reading on this can be found in this summary from HM Treasury to download below:

 

‘Super Deduction’ Factsheet

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Thank you. From all The Hague team.