super-deduction tax relief

The super-deduction tax relief, explained

By Published On: 22 September 2021

As a Limited Company contractor you’ll no doubt find yourself at some point purchasing equipment that’ll enable you to complete your work, and HMRC kindly allow you to offset part of the expenditure against your company profits. As an added bonus, by offsetting expenditure you’re able to reduce the total amount of Corporation Tax you pay.

The recently introduced super-deduction tax relief has also now meant that Limited Company contractors have a greater value tax break. In this blog we explore what the super-deduction tax relief actually is, what’s included, and how it could benefit you.

The super-deduction tax relief

April 1st 2021 saw the government announce a new ‘super-deduction’ Corporation Tax relief especially for Limited Companies. For qualifying expenditure it offers 130% first-year relief on plant and machinery until March 31st 2023, plus a 50% first-year allowance for special rate assets (click here for HMRCs super-deduction factsheet).

This new super-deduction will be welcomed from contractors, as the 130% equates to the whole of the expenditure, whereas normally it would fall within a company’s AIA (Annual Investment Allowance) that only provides relief for 100%.

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

Who can’t use the super-deduction?

If your Limited Company has a lease arrangement, or contractual requirement where the equipment has no expectation of being passed into your company’s direct ownership, then you won’t be able to use the super-deduction tax relief. You are also unable to use it for the purchase of vehicles, or second-hand items.

Selling goods purchased using the relief

If you sell any items which you used the super-deduction tax relief to purchase, you’ll need to be aware of the following:

  • For the period ending either on or before the 31st 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 1st of April 2023, proceeds remain taxable at 100% of the amount received

How Aardvark Accounting can help

If you’re considering upgrading your equipment then now is the perfect time. But before you add that new laptop to your basket, be sure to run your plans past your Aardvark accountant, to ensure you won’t be left out of pocket. Tax can be confusing and we’re here to help, so get in touch today.

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