Some tax enquiry cases…

THE GOVERNMENT’S ‘Super-deduction’ tax relief hopes to boost business investment and productivity.

In today’s Shipleys Tax brief we look at the basics of this new temporary deduction regime and why timing and good record-keeping are essential for businesses to take full advantage.

What is the 130% super-deduction?

From 1 April 2021 to 31 March 2023 expenditure on qualifying on “new and unused” plant and machinery will get an enhanced temporary 130% “first-year allowance” for main rate assets, and a 50% first-year allowance for special rate assets. This means for the 130% tax deduction every £1 spend on qualifying items will get you 25p off your corporation tax bill.

What are the conditions?

• Only plant and machinery qualifying as “main pool” expenditure will be eligible for the 130% super-deduction.  Other plant and machinery qualifying as special rate pool expenditure will be eligible for the 50% “Special Rate” allowance.

• These new allowances are only available to companies subject to corporation tax (not individuals, partnerships or LLPs) and only where the contract for the plant and machinery (including fixtures installed under a construction contract) was entered into after 3 March 2021.

• These allowances are uncapped and are in addition to the Annual Investment Allowance (‘AIA’) which is still also available to businesses and groups until 31 December 2021.

• Second-hand assets, even if expenditure is incurred after 1 April 2021, will be excluded.

• Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.

• These new allowances do not apply to expenditure on long life assets, cars or for plant and machinery acquired for leasing, including plant and machinery leased with property.

• Companies using finance/hire-purchase type arrangements to invest in plant and machinery would be able to access the super-deduction, provided payments are being made to acquire the asset and there is an expectation that legal ownership will pass at some point to the lessee on it exercising an option or another event occurring. 

• Software developed in-house that has been treated as an intangible fixed asset in the accounts could potentially qualify.

What should you do?

The new allowances could provide a big cash flow incentive for investment, if claimed correctly. Given the limited lifespan of the tax break and the timings involved in decisions on expenditure on plant and machinery, businesses should start planning now. If you’re thinking of making any investments in plant and machinery, think about bringing it forward or delaying until after 1 April 2021 to take advantage of this regime.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

AS THE ROLL out of the vaccine continues apace, UK Chancellor Rishi Sunak held back on the promised heavy taxation changes but instead opted for a light touch.

In today’s Shipleys Tax note we look at the highlights and what it means for you.

At a glance Budget 2021 announcements:

• Furlough extended until September 2021 and extra Self Employment Support grants made available with potentially more qualifying.

• Personal Allowance frozen for 5 years – this means that for tax years ended 5 April 2022 until 5 April 2026, you will be able to have an annual income of £12,570 before paying any tax, and you will be taxed at the higher 40% rate (32.5% for dividends) once your income exceeds £50,270. This will effectively push more and people into the higher tax rates as earnings increase.

• Corporation tax increase from 19% to 25% – the 25% rate will apply to companies whose profits are above £250,000. Where a company’s profits falls between £50,000 and £250,000, a (complex) tapering calculation will apply, thereby allowing companies to grow gradually without paying at the top rate.

• 2 Year “Super Tax Deduction” on business investments – a new “super deduction” of 130% of capital expenditure on new qualifying plant and machinery will apply from 1 April 2021 to 31 March 2023 (when the 25% rate of CT starts). The 130% deduction applies to business assets which would be eligible for the main capital allowances. Businesses which are able to invest heavily in plant and machinery within the next two years will benefit from the business tax cut before the increased corporation tax rate of 25% kicks in. 

• Extension of losses being carried back against tax – many companies will have made losses during the Covid-19 pandemic, therefore relief is provided for loss-making business to carry back losses by up to 3 years for up to £2m of losses per group in each of the financial years 2020/21 and 2021/22.  This £2m cap applies only to the extended carry back, so there is no change to the unlimited carry back of losses to the previous 12 month accounting period. 

• Stamp Duty holiday extended – the current Stamp Duty nil rate band of £500,000 for residential property acquisitions in England and Northern Ireland will be extended from 31 March to 30 June 2021, with a reduced nil rate band of £250,000 for acquisitions between 1 July and 30 September, after which it will revert to £125,000.

• Restart grants – https://www.shipleystax.com/2021/03/restart-new-grants-for-small-businesses/

• VAT 5% extended for 6 months then 12.5% thereafter – an extension to the temporary 5% rate of VAT until 30 September 2021. A new reduced rate of VAT of 12.5% will then be introduced from 1 October 2021 until 31 March 2022 after which the standard rate of VAT (20%) will apply

• Freeports – eight new freeport sites have been announced. Expenditure within designated freeports will attract the following reliefs:

1. Enhanced Structures and Building Allowances at 10% for buildings brought into use by 30 September 2026;
2. 100% enhanced capital allowances for companies incurring qualifying expenditure on plant and machinery within Freeport sites until 30 September 2026.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

IN THE BUDGET 2021 the Chancellor will unveil £5bn support package to help small businesses stay afloat until restrictions are lifted.

Under the scheme it is thought that non-essential retail businesses will be able to apply for grants of up to £6,000; while pubs, restaurants, hotels and leisure businesses will be able to apply for grants up to the full amount of £18,000.

Where can you get your Restart Grant?

The Restart Grant scheme, administered by local councils, will help most small business owners including those running shops, pubs, clubs, hotels restaurants, gyms and hair salons.

Non-essential retail businesses will get up to £6,000 per premises through the Restart Grant scheme to help them reopen. Shops will reopen no earlier than April 12, according to the Government’s Covid-19 roadmap.

More Restart Grant money will be available for any small business in hospitality, accommodation, leisure, personal care and gyms, which will reopen later and will be more affected by restrictions. They can receive up to £18,000, depending on their rateable value.

The Restart Grant scheme will replace the monthly Local Restrictions Support Grant (Closed) and Local Restrictions Support Grant (Open), which will both close at the end of March.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.