In this article and video Kerry Williams, Associate Director at our Great Yarmouth office, explains the new super-deduction and how it works alongside the Annual Investment Allowance.
What is super-deduction?
The chancellor announced the new super-deduction allowance in the spring Budget.
Super-deduction works alongside the Annual Investment Allowance and gives 130 per cent deduction against the purchase of new plant and machinery. However, it is only applicable to companies and for the purchase of new equipment.
There is no upper expenditure limit on super-deduction.
Corporation Tax at 19 per cent = tax saving of 19,000 pounds
Super-deduction – 130 per cent deduction = 130,000 pounds
Corporation Tax at 19 per cent = tax saving 24,700 pounds
Also announced was a 50 per cent first-year allowance for assets that would ordinarily qualify for the Special Rate Pool. However, if you have any remaining Annual Investment Allowance to use you should utilise that first to get 100 per cent deduction rather than 50 per cent deduction.
What is Annual Investment Allowance?
Annual Investment Allowance gives 100 per cent deduction against business profits for the purchase of qualifying plant and machinery.
The current expenditure limit is 1 million pounds until 31 December 2021 when it will drop to 200,000 pounds.
Any expenditure in excess of this limit goes into a Main Pool or Special Rate pool for tax purposes and attract Capital Allowances at either 18 per cent or 6 per cent per annum.
Do vehicles qualify for super-deduction?
Commercial vehicles such as lorries and vans do but cars do not. However, electric cars still qualify for the 100 per cent First Year Allowances.
Planning and timing are key to making the most of super-deduction and the Annual Investment Allowance. At Stephenson Smart we can help you get this right, please get in touch.
In the Chancellor’s spring Budget, we expected a raft of tax changes; these weren’t made. Instead, the Chancellor concentrated on encouraging investment and spending to help the economy recover from the impact of the coronavirus pandemic.
However, we do expect these tax changes to be made at some point in the future. In this article and video, I explain to you what areas are being considered for change, and how you can respond to that to maximise your allowances.
Relief for Pension Contributions
This was an area that we thought would be changed but wasn’t. The lifetime allowance rate has been frozen and, currently, all pension contributions are tax free, subject to an income threshold and annual allowance that is now 40,000 pounds.
Pension contributions can be made by your company or individually, they also save tax at the Corporation Tax Rate, Basic Rate, Higher Rate and Additional Rate, which is 45 per cent.
Pension contributions are flexible and can be made monthly or as a one-off lump sum. You can carry forward unused Annual Allowance for up to three years and use towards a lump sum pension payment. This can be very useful if you have one-off additional profits or if you sell an asset at a large gain. You can reinvest into a pension to increase your basic rate band or tax allowance.
The Chancellor may make changes to these tax breaks to create more of a level playing field for those with less wealth.
These changes could be reducing the Annual Allowance from 40,000 pounds to 10,000 pounds, removing the ability to carry forward allowances, and the rate of tax relief could be restricted.
I think these changes are likely but only when the economy has recovered sufficiently and will also be influenced by the government’s 10-year strategy for tax reform.
As a specialist in these areas, I would be happy to help you navigate these tax rules and potential changes.
School is now back in full swing and it does seem now like we have never been away.
Several things have changed.
First, the general state of the house. It’s miraculously tidy.
Two weeks ago there were pencils everywhere, but never one in sight, wrappers to various ‘snacks’ found in unimaginable places and greasy thumb prints on most doors, not to mention the laptop, which probably had all the ingredients of a good meal attached to it.
Secondly, it’s quiet. Previously echoes of ‘It’s not fair’ or ‘you’re on mute’ penetrated the walls, in between cries of ‘I need help’, or my favourite ‘I’m not doing it unless you star jump down the stairs’.
Thirdly everyone is dressed. Loungewear (as I understand it’s called) appeared to replace regular everyday clothes. I only know as it seemed to keep appearing in parcels through my letterbox.
I’m sure I speak for all parents when I say we tried our best, but one thing’s for sure, the boys were happy to go back to school and see all their friends.
And I was happy to finish a cup of coffee before it resembled something completely different.
It’s also been an interesting time economically with the announcement of Rishi Sunak’s Spring Budget.
Our clients have all been affected in different ways and we have been providing support for anyone needing more information.
It’s also good news for our hospitality and holiday accommodation clients. The government are planning an extension of the 5pc reduced rate of VAT until September 30 and to help businesses return to the standard 20pc rate, a 12.5pc rate will apply for the following six months until March 31, 2022.
This was a highly anticipated Budget that focussed on short to medium term support and recovery in light of the current financial, and overall situation, the country is in due to the Coronavirus pandemic.
In the Budget 2021, the Chancellor confirmed a continuation of the current furlough scheme until the end of June with a further extension until the end of September. From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July and 20% in August and September.
In addition to a fourth Self Employment Income Support Scheme (SEISS) grant, open for applications from late April, the Chancellor also announced a fifth SEISS grant to cover May to September this year. The value of the grant will be determined by a turnover test, businesses whose turnover has fallen by 30% or more will continue to receive the full grant, those whose turnover has fallen by less than 30% will receive a 30% grant.
A Busines Rates holiday for those in retail, hospitality and leisure industries will continue with 100% business rates relief from 1 April to 30 June, followed by 66% business rates relief for until 31 March 2022. Those in the tourism and hospitality sector will also continue to be eligible for the 5% reduced rate of VAT until 30 September, a 12% rate from September to March next year, with the full 20% VAT rate not coming into force for them until April 2022.
The Chancellor also announced a freeze on income tax Personal Allowance. The current rate is set at 20% when you earn £12,500 a year and the starting point for paying the 40% higher rate tax is £50,000. The thresholds will go up to £12,570 and £50,270 in April, as planned but will then be frozen for five years. With these thresholds maintained at the same level until April 2026, many people receiving a pay rise may find themselves in a new tax bracket.
One area that the Chancellor did announce a change to tax, albeit not until 2023, was on Corporation Tax. The rate will increase from to 25% on profits over £250,000, however the rate for small businesses with profits under £50,000 will remain at 19% and there will be a tapered system of relief for businesses with profits between £50,000 and £250,000, so that they pay less than the main rate.
The one big tax announcement was that of a new Super-deduction tax. From 1 April 2021 until 31 March 2023, companies investing in new plant and machinery assets, that qualify, will benefit from a 130% first-year capital allowance. This means that companies could cut their tax bill by up to 25p for every £1 they invest.
As predicted the Chancellor did not make this Budget about tax changes but about continued support for individuals and businesses in the wake of Coronavirus. However, with ‘tax day’ looming on 23 March, when the treasury will share documents and tax consultations to inform tax policy, we are likely to see more robust tax changes in the Autumn Budget later this year.
If you would like to discuss in more detail how these changes may affect you or your business please get in touch.
On Wednesday 8 July the Chancellor of the Exchequer, Rishi Sunak presented a Summer Economic Update to the House of Commons. The main theme of his announcement was a ‘Plan for Jobs’.
The Chancellor announced that, with immediate effect, there would be no stamp duty to pay when buying a property up the value of £500,000. This relief will be until 31 March 2021. The previous threshold before stamp duty was due was £125,000, or £300,000 for first time buyers.
This measure is a step towards trying to bolster confidence in the housing market and build upon the recovery that it is starting to make, which will in turn support the construction industry.
To further support the hospitality industry, VAT will be reduced from 20% to 5% on the supply of food and non-alcoholic drinks, accommodation and attractions. This will be from 15 July 2020 until 12 January 2021.
Further guidance on the scope of this relief will be published shortly.
The hospitality industry has been one of the hardest hit by the coronavirus outbreak. There have been other schemes and grants given specifically to this industry to help it maintain and recover. The reduction in VAT and the ‘Eat Out To Help Out’ discount scheme, which will run during August, are further to steps to support those in the hospitality industry and will be welcome news to many businesses in the local area.
Jobs Retention Bonus
As an extension to the Coronavirus Job Retention (Furlough) Scheme the Chancellor announced news of a Jobs Retention Bonus. This will be a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021.
Employees must earn above the Lower Earnings Limit (£520 per month), on average, between the end of the Coronavirus Job Retention Scheme on 31st October 2020 and the end of January 2021.
Payments will be made from February 2021. Further detail about the scheme will be announced in due course.
This measure is in response to calls for the Jobs Retention Scheme to be extended beyond 31 October 2020 and is designed to encourage employers to retain staff to prevent redundancies and higher unemployment when the scheme ends.
The Chancellor announced a raft of measures designed to support, create and protect jobs. The most significant one being the Kickstart Scheme that encourages UK employers to create high quality 6-month work placements for those aged 16-24, with government funding available for each job to cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer National Insurance contributions and employer minimum automatic enrolment contributions.
These further announcements of business support by the government are designed to try and prevent the UK economy from shrinking further, and to weather the global recession caused by coronavirus.
The Chancellor plans to deliver a Budget and spending review this Autumn that should give a clearer picture of the health of the British economy.