Evans Mockler - Super-deduction and Corporation Tax change
Evans Mockler have produced this document as a guide for members of BITA in relation to the upcoming changes to the Super-deduction Capital allowances and Corporation Tax rates on 31 March 2023.
Super-deduction ceases on 31 March 2023
From 1 April 2021 to 31 March 2023, companies can claim 130% Super-deduction capital allowances on qualifying new plant and machinery assets. This Super-deduction allows companies to reduce their tax liability by up to 25p for every £1 they invest. Please click here for the Treasury’s factsheet on the Super-deduction. The additional 30% over and above the AIA (Annual Investment Allowance of 100%) of the Super-deduction rate is prorated over a company’s accounting year if necessary, e.g. if a company with a year end of 30 June 2023 purchased a qualifying asset on 31 March 2023, the 30% would be prorated as follows – July 2022 to March 2023 (9 months of Super-deduction) and April to June 2023 (3 months of no Super-deduction), therefore 30% x (9/12 months) = 22.5%.
Corporation Tax rate increases on 1 April 2023
The main rate (companies with profits over £250,000) of Corporation Tax will increase from 19% to 25% from 1 April 2023. The Small profits rate (companies with profits under £50,000) will remain at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This allows for a gradual increase in the effective Corporation Tax rate.
If you are thinking of purchasing a capital asset the date you purchase it will have an impact on your tax savings. For example, for a company that has profits over £250,000 and a year end of 30 June 2023:
Company A spends £500,000 on a qualifying asset on 31 March 2023 Super-deduction prorated = (9/12 * 30%) plus 100% = 122.5% * £500,000 = £612,500 Corporation tax rate = 19% Tax savings = £612,500 x 19% = £116,375
Company A spends £500,000 on a qualifying asset on 1 April 2023 Annual Investment Allowance (AIA) (Super-deduction no longer available) = £500,000 Corporation tax rate = 25% Tax savings = £500,000 x 25% = £125,000
In essence, if the qualifying asset is under £1 million it would usually be better to purchase it on or after 1 April 2023 when the Corporation Tax rate is increased in 25%.
This can be a complicated area as illustrated above. We are happy to discuss this in more detail if you wish. Please contact me on the details below should you have any queries.
Kind regards, Martin
Martin Mockler FCCA
Email: [email protected]
Mobile: 07976 421715
Direct Line: 020 8447 3222
Main Office: 020 8449 9632