Are you missing out on the super deduction?

Date posted: 5th Oct 2021

The super deduction is intended to give tax relief at an enhanced rate for expenditure on brand-new capital items such as plant and machinery, vans, trucks etc.

However, taking a step back, whether an item of expenditure is classed as a capital expense or a revenue expense can depend upon a number of factors such as:

  • Is it the acquisition of something new to the business?
  • Is it an item that falls in the capital allowances regime?
  • Is there case law on this area of expenditure?
  • Is there a HMRC concession that covers the expenditure?
  • Is it the expense an actual repair or refurbishment of a larger asset?
  • How does the repair cost compare to the original cost of the asset?

These are age old questions that our tax team consider on a daily basis!

However, many companies will only capitalise expenditure (i.e. take an expense to the balance sheet rather than the profit and loss account) if the expenditure is above certain internal tolerances. So some of these companies may actually be missing out on the super deduction, unless they have an accountant with a keen eye!

For instance, Joe Bloggs and Sons Limited, may have a policy of only capitalising expenditure over £5,000. So smaller items of capital expenditure are taken to the profit and loss account and included in the repairs expense.

Let’s say that the company boardroom at the headquarters has been refurbished with a new table costing £4,000, new chairs costing £3,500 and a new TV for £2,500. The company has also spent monies on new computer equipment of say £1,000 for each of it’s thirty directors and new kitchen equipment at each of it’s five sites of £2,000 per site. So in total, the company has spent £50,000 on new equipment during the year. If the expenditure is within repairs, then whilst not strictly correct from a tax relief perspective, it will obtain full tax relief for £50,000. If instead it had been capitalised so that the super deduction can be claimed, the tax deductible expenditure would have been £65,000 due to the 130% super deduction up lift. In this instance, the tax accountant has noticed the issue (not all accountants may do so) and made an adjustment in the tax computation so that the company claims tax relief on an additional £15,000 of expenditure.

The above is a simple example, but a real life scenario. It is important that if you are spending monies on capital items, that you consider the impact of the super deduction.

You can read more about the super deduction at https://www.cliveowen.com/2021/09/super-deduction-a-recap-of-the-new-relief/

If you have any queries, please give us a call or contact us here 


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