‘Super-Deduction’ Tax Break – But Not For All
Corporates may soon be able to benefit from a significant tax break when the new ‘super-deduction’ tax break is introduced, reducing their tax bill by a potential 25 per cent. It’s an attractive incentive for businesses seeking to cut their corporation tax bill by injecting more cash back into their business, but many businesses will miss out.
From the start of April, companies who invest in new plant and machinery may be able to claim a 135 per cent capital allowance on qualifying plant and machinery investments; and a 50 per cent first-year allowance for qualifying special rate assets.
Potentially qualifying assets including solar panels, office and foundry equipment, vehicles and computer equipment. To benefit from the 130 per cent super-deduction, the asset must have been purchased new and not second-hand.
The government’s aim in introducing the generous but temporary measure - the tax break will last for two years beginning on 1 April 2021 - is to encourage investment at a time when many businesses are suffering from the economic fallout from covid-19. Government says that since the pandemic began, there was a reduction of 11.6 per cent of business investment between quarter 3 of 2019 and the same quarter in 2020.
Weak business investment has played a significant role in the slowdown of productivity growth since 2008. Government says the tax break is worth some £25 billion to UK companies over the two-year tax break period. Chancellor Rishi Sunak called it “the biggest business tax cut in modern British history”.
What’s the sticking point?
This means that when companies invest in qualifying assets, they will be able to reduce their tax bill by 130 per cent of the cost.
But not all businesses will benefit. As the super-deduction tax benefit is only available to companies who pay corporation tax, it has been criticised as “grossly unfair” on businesses structured as partnerships – whether limited liability partnerships or traditional partnerships. According to Companies House, more than 50,000 LLPs formally registered in the UK, as well as more than 50,000 limited partnerships in the UK. Sole traders are also excluded.
The range of businesses effectively excluded from the tax break includes many professional services firms, GP surgeries, farming businesses and others – all of which invest in assets but will not be able to claim the temporary ‘super-deduction’ tax break.
Landlords of commercial premises are also excluded, at a time many have been unable to enforce payment of rental debts that may have accumulated during the pandemic and where premises have been made vacant as businesses were forced to close. This means that landlords who will have no choice but to invest in their premises to attract new tenants cannot claim the super-deduction tax break.
It’s also unclear the extent to which the tax break will be available. For example, there is lack of clarity whether it might apply to certain intangible assets.
For now, it is the big name companies, along with those in the manufacturing and construction sectors in spatially who will be welcoming the temporary tax break. Whether partnerships and other business structures could, in due course, be granted a similar tax break depends on pressure from the business community.
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