The Super-Deduction Tax Relief

As a Limited Company contractor you’ll no doubt have equipment to enable you to complete your work. HMRC allows you to offset part of the cost of purchasing said equipment against your company profits. Plus, as an extra bonus, by doing so you’re able to reduce the total amount of Corporation Tax you must pay.

The super-deduction tax relief has also now meant that Limited Company contractors are entitled to an even greater value tax break. This blog takes a deeper look into the relief, what it includes, and how it could benefit you.

The super-deduction tax relief

On the 1^st of April 2021 the government announced a new ‘super-deduction’ Corporation Tax relief, especially for Limited Companies. For qualifying expenditure it offers 130% first-year relief on plant and machinery purchases until the 31st of March 2023, plus a 50% first-year allowance for special rate assets (you can view HMRC’s super-deduction factsheet here).

Contractors will no doubt welcome this new super-deduction, as the 130% equates to the total purchase price, whereas normally it would fall within a company’s AIA which only provides relief for 100%.

For example, if you were to purchase a laptop for £1,000, under the new super-deduction tax relief rules you’d receive £247 in Corporation Tax relief, whereas you’d only receive £190 on the old AIA scheme (£1,000 x 130% = £1,300 x 19% versus £1,000 x 19% previously).

Are there any rules which mean you can’t use the super-deduction?

You won’t be eligible for the super-deduction tax relief if your Limited Company has a lease arrangement, or contractual requirement where the equipment purchased has no expectation of being passed into your company’s direct ownership. It also doesn’t apply when purchasing vehicles, or items that are second hand.

Selling goods you purchased using the relief

Should you decide to sell anything you purchased using the relief, you’ll need to be aware of the following:

• For the period ending either on or before the 31^st of March 2023, proceeds will be taxed at 130% of the amount received, with periods remaining taxable at 100% of the amount received
• For the period starting on or after the 1^st of April 2023, proceeds remain taxable at 100% of the amount received

How SG Accounting can help

If you’ve had your eye on a new bit of equipment for your contracting career, then now could be the perfect time. Ensure to speak to your SG Accounting Personal Accountant before parting with any cash, to ensure you’re not left out of pocket. Tax isn’t the easiest topic to understand, so leave it up to the experts, and get in touch today.