Changes to how taxes are calculated should be understood to efficiently manage any business. Running a workshop means that you need the tools and equipment to do so, ensuring accuracy in your accounts reporting will ensure you are paying the right amount of tax. Making sure you have the most up to date information is critical, and can be found on the government website and the services of a good accountant are essential. Musings on changes to the budget are not intended to replace professional advice.
What is the Super-Deduction?
There are different types of expenses?
Trading expenses are the items that are essential to work, such as stationary, they are used in the day to day running of any business. Trading expenses are not treated as capital allowances.
Plant, machinery, cars, tools, equipment, desks, or computers are not trading expenses, instead -these are termed under the catch all “plant and machinery” and are capital allowances.
Breaking it down
- For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments.
- Under the super-deduction, for every pound a company invests, their taxes are cut by up to 25p.
- This change makes the UK’s capital allowance regime more internationally competitive, lifting the net present value of our plant and machinery allowances from 30th in the OECD* to 1st.
The reduction of business investment has fallen because of the Covid-19 pandemic, the purpose of the Super-Deduction is to stimulate the economy by encouraging investment and placing the UK at a competitive advantage on the world stage. The generous capital allowance should play a significant role to increase productivity, stimulate business investment and this should promote economic growth and incentivise companies to make additional investments, and to accelerate investment planning. Understanding what is termed “Plant and Machinery” for tax purposes will be critical when making purchasing decisions, checking the government website for guidance, and checking with your financial advisor or accountant is essential.
Some Spring Budget Notes
The spring budget brought some welcome relief to the sector, extension to the furlough scheme, business rates relief, even the £20 boost to weekly Universal Credit payments and the stamp duty holiday are all welcome news to the automotive aftermarket.
However, the cost of Covid-19 will need to be recovered, there will be a tax hike to corporation tax, rising to 25pc in 2023. Smaller firms should benefit from a lower rate. Understanding now where you are within that guidance will avoid any nasty surprises in 24 months. The thresholds at the time of writing are that smaller firms, those with profits under £50,000 will still enjoy the lower 19pc corporation tax rate.
The freezing of income tax thresholds to 2026 will claw back some of the monies due. As the cost-of-living rises, so will the pay expectation – with the threshold firmly in place, this means more of that money will go to the treasury, not into pockets. This may prompt an interest in increased pension contributions which will have tax advantages for both worker and employer, and ultimately the treasury with future pensioners in a more self-sufficient position.
Equipment in our sector can be expensive, building a forecast of what to buy and when, perhaps considering the new Recovery Loan Scheme to assist cash flow and growth. Keeping an eye on costs of employment and how pension planning can help your team can also improve your tax efficiency. Remember you can still enjoy a drink at pre-covid tax rates!
- Know what side of £50k your profit forecast is on
- Increased pension contributions can help your tax efficiency as well as your team
- Know what plant & machinery purchases are allowable for the Super-Deduction and claim against your tax!
*OECD The Organisation for Economic Co-operation and Development has 37 member countries and was founded in 1961 to stimulate economic progress and world trade.