Does Super-Deduction tax apply to leasing?

Unsurprisingly the question we’re being asked the most by our customers and suppliers is ‘Does the Super-Deduction tax apply to leasing?’ We’re also being asked how the relief works and how it can benefit their business.

The super-deduction 130% first year tax relief on qualifying assets is a major boost in the arm to UK capital equipment investment. Announced in the Budget, the scheme runs from the 1^st April 2021 until the 31^st March 2023.

Let’s take a look at the impact on leasing and asset finance.

How does super-deduction tax apply to leasing?

You should be able to claim the 130% super-deduction tax relief when you sign a lease purchase agreement. From a Corporation Tax planning exercise, the tax position on lease purchase agreements is the same as if you were to pay cash for the asset.

What is the Government / HMRC saying about lease purchase / hire purchase agreements?

The Government has quoted, “Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.”

What does this mean? The UK leasing sector is asking for clarification, however, the widely held belief is that you can use a hire purchase / lease purchase agreement and still get the 130% first year allowance tax relief.

What does “qualifying main rate plant and machinery” mean?

Lorries, vans, tractors, computer equipment, manufacturing equipment, solar panels are all qualifying assets. Certain assets are exempt from this scheme.

What does super-deduction tax break mean?

You can claim 130% of what you send on equipment against taxable profits.

Why is the Government doing this?

They are expecting to raise the level of UK business investment by 10% this year and to bring forward other investment.

What is the tax saving impact of super-deduction tax?

A company spending £50,000.00 on assets in a year would get £65,000 of tax relief. At 19% tax, that would mean a tax saving of £12,350.00.

Let’s look at some of the areas where you cannot claim super-deduction tax relief

Is the funder (technical name lessor) able to get the 130% super-deduction?

No

Can you get the super-deduction tax relief on lease rental agreements?

No

Can you get super-deduction tax relief on car finance?

No

Can you get super-deduction tax relief on refinance deals or sale and leaseback?

No

Can the plant and machinery be used or second hand?

No

I am both the manufacturer and customer, can I claim the tax relief?

No, they do not allow related party transactions.

Where can I read more about the Super-Deduction Tax?

The government have published the draft bill this week and can be viewed here.

For more information on lease purchase agreements or to discuss if the assets you’re financing apply to the Super-Deduction tax relief, please contact us on 01494 611 456 or email us on hello@westwon.co.uk.