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Making the most of the Chancellor’s Super-Deduction tax scheme

Written by Andrea Reynolds on Wednesday, 19 May 2021. Posted in Financial management, Finance

Andrea Reynolds, founder and chief executive of Swoop, explains how SMEs can benefit from Rishi Sunak’s latest budget offering.

Making the most of the Chancellor’s Super-Deduction tax scheme

Andrea Reynolds, founder and chief executive of Swoop, explains how SMEs can benefit from Rishi Sunak’s latest budget offering.

On first viewing, the Chancellor’s Super-Deduction tax scheme, which was introduced to encourage businesses to reinvest their profits, appears to be solely aimed at helping companies in the industrial sector. Wording used in Government literature, such as ‘plant and machinery’, gives the impression that Chancellor Rishi Sunak's policy was limited to companies involved in heavy industry.

But that certainly isn’t the case. His Super-Deduction plan to boost business investment is a tool many SMEs can take advantage of. But more on that later: Let’s first examine the background to this scheme which was unveiled during the Government’s March Budget. 

Business investment, which suffered badly following the financial crash of 2008, has also been adversely affected during the on-going Covid-19 pandemic. Hardly any of the world’s major economies have escaped unharmed. In 2020, investment during the third quarter was 11.6% down on the same period the previous year.

The Chancellor recognised the need for businesses to reinvest some of their profits in order to boost productivity. This, in turn, would hopefully speed-up growth in the UK economy, so he devised this cunning plan called Super-Deduction. 

This is how it works: It allows companies to claim 130% of what they invest in plant and machinery against the company’s taxable profits. It will reduce tax bills by 25p for every £1 spent. Or put another way, for every pound you spend, you cut your taxes by 25p. The Super-Deduction plan will run until the end of March 2023, so if you invest £100,000 between now and then, you’ll reduce your tax bill by £130,000.

So where does this help SMEs, in their battle to survive the post-pandemic downturn? First of all, terms such as ‘plant and machinery’ also covers office and company equipment. This can include computers, chairs, desks, cabinets, as well as motor vehicles.

SMEs, which embrace an environmentally friendly route in business, can take advantage of this tax break by installing solar panels or charging points for electric vehicles. A closer read of the small print highlights a 50% first-year allowance for some specialist equipment that doesn’t ordinarily qualify for the 130% rate.

There is also an increase in the annual investment allowance from £200k to £1m, until the end of this year. And there are a number of incentives included in the scheme where businesses can make good use of ‘freeports’. These are areas exempt from customs duties and tariffs, allowing businesses to import goods without incurring extra fees.   

While the Budget was generally ‘SME friendly’, some business owners will have been disappointed by the rise in corporation tax, which could reach 25% by April 2023. However, this only applies to companies with annual profits greater than £250k. Not everyone will be asked to pay this hike to 25%, and those generating a profit of less than £50k a year will remain on 19% corporation tax.

Yet, the Chancellor’s latest Budget should ease some of the burden over the next couple of years for those affected. Rishi Sunak is hoping this Budget announcement will give companies the confidence they require to reinvest in a much-needed new IT system, or updated furniture or environmentally-friendly vans.

This feature was brought to you courtesy of Swoop, who are ready and waiting to assist you when undertaking your next important asset purchase.

Swoop will direct you towards the best finance option for your business and advise you on your next move.

About the Author

Andrea Reynolds

Andrea Reynolds

With 15 years’ experience in corporate financing, largely focused on matching businesses with funding and investment opportunities, Andrea launched Swoop in 2018 to help SMEs start up, scale up and finance their new ventures.

Arguably the UK’s number one expert in business funding, it’s not hard to see why she is affectionately known to colleagues and industry peers as the ‘Martin Lewis of business finance’.

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