What is The Super Deduction Tax relief?
According to the government’s budget 2021 scheme, the super deduction tax relief is an incentive designed to stimulate and spark business investment in the wake of the COVID-19 pandemic. Any company investing in new material handling equipment that qualify, are able to claim 130% first-year relief and thankfully, this includes new Lithium-Ion battery forklifts. The scheme applies to capital plant/machinery assets incurred from 1 April 2021 until the end of March 2023, so at the time of writing, you have 2 years to take advantage of this tax incentive.
A message from the British Chancellor – Rishi Sunak quotes: “It’s a direct way to help businesses invest and drive growth in the economy”. Something which has recently taken a downfall in the past two years as a direct result of the Covid-19 pandemic.
Why is The Government Introducing A Super Deduction?
When Covid-19 was in full force, the already existing low levels of business investment have taken a further decrease, with a reduction of 11.6% between Q3 2019 and Q3 2020. As such, the government has tried to offer unprecedented support for businesses, due to pandemic-related economic shocks and uncertainty, and tried to stimulate the already halted levels of business investment.
This super deduction, and by making capital allowances more generous, will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them expand. As a result, these measures can stimulate economic growth and counter unfavourable business cycles. The super tax deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.
Ultimately, the super tax deduction is introduced to boost the UK’s post-pandemic economic recovery and improve the country’s productivity levels over the next two years. This should, in turn, lead to more corporate profits for the government to tax in 2023.
Super Deduction Tax in Practice
The easiest way to visualise the benefits of the 130% first-year tax relief on qualifying main rate plant and machinery investment is to assume the following:
For simplicity, let’s say your business generates a total revenue of £200,000 and has a total investment cost of £100,000 on new lithium-Ion forklifts, which falls under the category of new main rate equipment. Usually, you would be left with £100,000 of taxable gross profits and a net profit of £81,000 (due to the 19% corporation tax) meaning that overall, you are paying £19,000 in tax.
However, if you’re eligible to claim the super-deduction tax relief, you can list your total cost for the forklifts as £130,000 (130% of the initial investment of £100,000).
This now means that instead of having a gross profit of 100,000, you now have a gross profit of £70,000 (£200,000 minus £130,000).
By deducting the corporation tax (19%) from the new gross profit figure (£70,000), you are left to pay £13,300 in corporation tax as opposed to the previous £19,000.
Consequently, you are saving yourself £5700 on your corporation tax bill!
What Qualifies as New Plant and Machinery?
Unsurprisingly, not all business investments will qualify for the tax relief, but the assets that do qualify for the super deduction tax relief includes all new plant and machinery main rate investments such as:
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks
- Electric vehicle charge points
- Refrigeration units
- Compressors
- Items that you keep to use in your business, including motor vehicles
Thankfully, Lithium-Ion forklifts have made the cut.
In addition, the following capital asset conditions must also be met to apply for this incentive:
- The asset is made by a company within the scope of corporation tax
- The plant or machinery is new and unused
- The expenditure must be incurred on or after 01 April 2021 and before 01 April 2023
- The relevant asset is not used for leasing
What Trucks Direct Offer
Here at Trucks Direct, we supply a fantastic range of new lithium-Ion forklifts consisting of EP forklifts and the heavily sought after GreenPower forklifts. We highly recommended planning ahead of schedule and purchasing these forklifts soon before the tax relief incentive runs out. This is because the super-deduction allowance is the most attractive tax incentive ever offered by the British government and only under exceptional circumstances will this scheme ever be repeated.
Contact us today if you require more information about any of our forklifts take advantage of the scheme today!