Super Tax Deduction

Do NOT miss your ‘super’ tax deduction

May 30, 2022

The super-tax deduction deadline is looming, the trading losses conundrum plus SDLT changes could be coming.

Hurry, the 130% reduction ends in March

Here at TAG Accountants, one of our aims is to ensure that when tax planning, our clients take full advantage of any tax deductions that may be available. In this article, we focus on the super-deduction capital allowances available until March 2023 on purchase of new plant and machinery – it makes sense to start forward planning the timing of your capital expenditure to ensure you maximise your tax position. We also look at the current situation regarding the use of trading losses and a potential change to stamp duty on multiple dwellings relief.

Super-deduction – the clock is ticking

The 130% super-deduction of capital allowances for companies that invest in new plant and machinery applies where the expenditure is incurred between 1 April 2021 and 31 March 2023. For example, if a company buys a new commercial vehicle costing £50,000, they can deduct £65,000 from trading profit in that year saving £12,350 in corporation tax.

Because of cash flow issues created by the COVID pandemic, many companies have put investment in capital expenditure on hold and this has been further exacerbated by current uncertainties arising from the war in Ukraine. However, this is a generous tax allowance, and now is the time to look at capital expenditure requirements to ensure use of the super-deduction is maximised up to 31 March 2023. We suggest company directors take some time to map out their capital expenditure plans with a view to pulling forward 2023 purchases of new equipment to the first quarter wherever possible.

The hope is that the current £1 million Annual Investment Allowance (AIA), where 100% capital allowances can be claimed in the year of expenditure, will continue to be held at that level once the super-deduction ends. Remember that this is available to unincorporated businesses as well as companies and covers second-hand as well as new equipment.

Trading losses – carry back or carry forward conundrum

It is worth remembering that in the March 2021 Budget, it was announced that the one-year carry back for trading losses to offset against prior year profits would be extended to three years. This was done so that many businesses (both companies and unincorporated businesses) that made losses during the COVID pandemic could obtain a repayment of tax paid in that earlier three-year period.

On the face of it then, a loss carry back seems a “no brainer.” However, we also must bear in mind that the corporation tax rate increasing to 25% from 1 April 2023 for profits over £250,000 and so there may be some merit in deciding to carry trading losses forward to offset against future profits that will be taxed at a higher rate, especially as the marginal rate of tax works out at 26.5% where profits fall between £50,000 and £250,000 a year. Businesses need to consider whether a tax refund now is of more importance to the business than a potentially bigger tax saving in the future.

The enhanced carry back covers loss-making accounting periods for companies ending between 1 April 2020 and 31 March 2022. For unincorporated businesses, any trading loss must be incurred in 2020/21 or 2021/22.

We are here to help with assessing this conundrum so that you can take the appropriate decision for your business.

SDLT multiple dwelling relief – is change on the way?

We are aware that HMRC is consulting on changes to the relief from stamp duty land tax (SDLT) when two or more properties are acquired at the same time. This suggests a change in the rules could be imminent, and so purchasers of property should seek to make use of the relief whilst it continues to apply.

Under current rules, where at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser, the purchaser can opt to have the rate of SDLT determined by the average value of the dwellings purchased, rather than their combined value.

This means that purchasers could benefit from multiple nil-rate and lower percentage bandings, the effect of which could be to significantly reduce the amount of SDLT payable. Multiple dwellings relief must be claimed in a land transaction return, and it is worth checking that your conveyancing solicitor is aware of the availability of this relief whilst it is still available.

Your Wolverhampton tax experts are only a phone call away!

If you need any assistance with some or all of the issues raised above, please do not hesitate to get in touch with our tax team here at TAG Accountants Group, Wolverhampton by calling 01902 783172 or, alternatively, just click HERE to contact us via our website.

We look forward to hearing from you.