Super Deductions - What it means for Farmers 2021

What does the 130% Super Tax Deduction mean for farmers?

On 3 March 2021, Chancellor Sunak set out plans for a new Super Tax Deduction, in a bid to kickstart low levels of business investment currently hampered with the effects of the Covid-19 pandemic.  The gov.uk site has a few docs that cover the subject, but if you, (like me) think them a little too deep, hopefully this blog will hit the highlights.

 

Essentially, with the latest policy, incorporated companies can claim 130% capital allowances on qualifying ‘plant and machinery’ off their corporation tax.

For anyone who doesn’t know, a capital allowance is an expenditure a UK business may claim against its taxable profit.  You cannot claim capital allowances on things you lease, you must own them.

For example, on spending of £100,000 on qualifying ‘plant and machinery’ (just envisage any shiny assortment of agricultural machinery) between 1st April 2021-31st March 2023, a company could deduct £130,000 from its taxable profits, which would represent a reduction of up to £24,700 on its corporation tax bill for that tax period.  Under the new measure, for every pound a company invests, their taxes are cut by 25 pence.

There are a few significant capital allowance measures which business can benefit from.

      • The super-deduction offers 130% first-year relief on qualifying main-rate plant and machinery investments for incorporated companies until 31 March 2023, that ordinarily qualify for 18% main rate writing down allowances.
      • The 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023 that ordinarily qualify for 6% special rate writing down allowances.
      • Annual Investment Allowance (AIA) providing 100% relief for plant/machinery investments up to its £1 million threshold for sole traders and partnerships, until 31 December 2021
      • Structures and Buildings Allowances (SBA), businesses can claim up to 3% per annum tax relief from the SBA to cover the construction and renovation of non-residential structures and buildings (i.e offices, warehouses, factories, walls, tunnels)

 

So, what’s the difference between main-rate assets and special rate assets?

Main-rate assets are ‘Plant & Machinery’ you have brought, whereas special rate assets are things you have to claim a lower rate of 6% on, i.e., parts of a building, such as ‘integral features’ or items with a long life (a useful life of 25 years plus from new).

Plant & machinery does not cover buildings, land or structures, or items used for business entertainment.  The following things can come into the class of plant and machinery assets, it’s not limited to these things but these can qualify for either the super-deduction or the 50% FYA.

      • Solar panels, IT equipment, Tractors, Lorries, Vans, Agricultural Machinery, Cranes, Office furniture, Refrigeration Units, Compressors, automation, Electric Vehicle charge points

 

So how does the new 130% Super Tax Deduction apply to me?

If you’ve found your way to this blog, you’re most likely to be a farmer, contractor, smallholder, haulier or engineer.  If you’re none of the above, I’m sorry for not giving your profession better recognition, we’re glad you’re reading this blog nevertheless. Basically, so long as you’re a company looking to purchase new capital equipment and can prove that the expense is classed as ‘Plant & Machinery’, the Super Tax Deduction could indeed be of benefit to your business.

If you’re looking to invest in new agricultural machinery, the Super Tax Deduction, in combination with other capital allowance schemes, could seriously cut your businesses tax bill!  Browse our website here: www.agri-linc.com/farm-machinery.html or give our team a call on 01778 591225, and we would be delighted to help out.

Information is given in good faith, but before taking advantage of this scheme we recommend you seek professional advice from your accountant and tax advisors.

Or, you can read the official document on the new measures announced in the budget here, for more details:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/967202/Super_deduction_factsheet.pdf

Sources:

etl.beis.gov.uk/

www.rjp.co.uk/

https://www.gov.uk/

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