After two years, the corporation tax super deduction will no longer be available for expenditure on or after 1 April 2023. Transitional rules will apply in respect of expenditure for accounting year ends that don’t fall on 31st March.
Given this pending change, we wanted to highlight the care that is required when it comes to the timing of any upcoming qualifying expenditure you may be planning or considering.
To recap, as part of the finance act 2021, the capital allowances super-deduction has enabled companies purchasing qualifying new plant and machinery to claim a 130% deduction on assets that would normally qualify as additions in the capital allowances main pool. A separate 50% first year allowance has also been available on assets that would normally qualify as additions in the capital allowances special rate pool.
This super-deduction can be claimed by incorporated businesses only. This is available for new and unused qualifying main pool expenditure between 1 April 2021 and 31 March 2023, although it could not be claimed where contracts were entered into before 3 March 2021 (which was Budget Day).
For companies with a 31 March year end, the position is relatively simple. Super-deduction can be claimed on qualifying expenditure in the year ended 31 March 2023 at 130% as per above.
Companies with a yearend other than 31 March will need to apply the transitional rules. This will apportion the super-deduction to pro-rate the 30% uplift so that the company receives a proportion of the 30% based on the number of days in a company’s accounting period that are before 1 April 2023. This reflects the fact that the company’s taxable profits in the accounting period straddling 31 March 2023 will be pro-rated between the old and new Corporation Tax rates.
To help illustrate the super-deduction transitional rules, HMRC have included a calculator on their website.
By setting the super-deduction at 130%, the government have been providing companies broadly the same tax relief as they would expect to receive on annual investment allowance qualifying additions after the main Corporation Tax rate increases to 25% in April 2023.
It is worth noting that the corporation tax rate going forward will be dependent on the businesses profit level. If the company profit is £50,000 or less, the 19% tax rate will remain. Businesses with profits between £50,000 to £250,000 will be subject to a tapered rate of 26.5%. With only businesses with profits exceeding £250,000 being charged the corporation tax rate of 25%.This will therefore impact the potential tax relief, depending on the rate of tax the business is charged post 1 April 2023.
Should you have any questions or require any assistance regarding this upcoming change, please do not hesitate to contact our team today.