How does the Super Tax Deduction work with leasing?
From the 1st April until 31st March 2023, companies investing in new plant and machinery assets are able to claim the 130% super tax deduction. For further information visit here.
We are used to speaking about the tax benefits of asset finance. However, these conversations have been taking in a new meaning since the announcement of the new super tax deduction.
In this article, we explore how does the super deduction work with finance?
Can I take out a finance agreement and still claim super deduction tax relief?
The simple answer is YES. From a tax planning perspective, a hire purchase agreement has the same tax allowances as if you are paying cash for an asset. This enables the qualified asset to take advantage of the 130% tax breaks.
Can you claim super deduction relief on a lease rental or hire agreement?
No, when leasing you do not have title of the equipment as it is a lease rental. As such you will not be able to claim the super deduction tax relief. However, you are able to offset all the rental payments against profits using the annual capital allowances to reduce your tax bill. For further information visit here.
What is the impact on investment in the UK?
The super deduction relief is expected to increase UK capital equipment investment by about 10% this year. Some of this investment will just be companies bringing forward investments from future years. However, at WestWon we have already seen a huge increase by clients looking to take advantage of this tax break.
Will the use of finance increase due to super deductions?
Yes. Financing in the UK is still the main way companies raise money to finance equipment purchases. It is expected that the use of finance will increase in 2022. There is also a high expectation companies will move from lease rental, to hire purchase agreements.
What is the situation regarding leasing and the financing of non-qualifying assets?
Certain asset types do not qualify for the Super Deduction tax scheme. An example is office fit outs. Some of this expenditure does qualify, however, where the asset is part of the fabric of the building, the tax position is very different.
For non-qualifying assets, there are still available tax breaks to companies wishing to use the option of either a lease rental or commercial loan. In addition, we can support you by splitting a project up to look to take out a lease purchase agreement on the qualifying assets and a business loan on the non-qualifying assets.
The super deduction – a boost in the arm for UK finance companies
Finance companies thrive on investment. The more companies look to invest in capital equipment, the more business a UK leasing company will do. We thank the Chancellor for the introduction of the enhanced tax breaks, it is a real boost for all UK finance companies.
Want to know what the saving looks like?
Use our super deductions calculator to give you a guide on the savings you can make.
If you would like more information on how we can support you and your business in regards to the super deduction scheme then head over to our contact page on our website to speak to a member of our team.