On 31 March 2023, the government’s 130% capital allowance ‘super deduction’ scheme came to an end. It had been introduced two years earlier to encourage companies that pay corporation tax to make investments post-COVID – allowing them to deduct 130% of plant and machinery costs from their profits when calculating the amount of tax to be paid.
As well as industrial equipment and machines, eligible purchases under super deduction included computers, printers and office furniture – as long as they were new and unused. With no expenditure ceiling, this tax relief was a timely boost for the business products industry as companies looked to implement workplace refurbishments and reworking projects as pandemic restrictions were lifted.
Spread the word
Of course, companies had to first be made aware the tax benefit was available for office refits. In February 2022, the Office for Budget Responsibility (OBR) admitted the take-up had been less than its initial forecasts. To help spread the word among its membership, the BOSS Federation teamed up with chartered accountants Garbutt and Elliott, which produced a fact sheet that explained super deduction and provided some practical examples of how it worked.
It was also a chance to galvanise top lines, a fact not lost on the dealer groups. “I think it is fair to say most dealers are switched on about these schemes and some have certainly taken the opportunity to boost sales,” notes Advantia Managing Director Steve Carter.
“Some were successful in raising awareness within their own customer base and have grown sales as a result. Others will have taken advantage by investing in machinery and equipment for their own use in order to drive revenue, with the print and workwear sectors being good examples.”
He adds: “Our job is to ensure dealers have a good understanding of these schemes and provide marketing collateral to support them when having customer conversations.”
It is a similar message from Nemo Office Club. “The majority of our members are very aware of the 130% super deduction tax relief and have used it effectively to stimulate additional business, in particular the furniture category,” states Managing Director Tim Beaumont.
“As a group, we have provided dealers with information via our weekly news round-up and marketing tools from our intranet portal. Here, they can order personalised postcards and email templates communicating the benefits to their customers and how they can assist.
“We have also worked very closely with furniture supplier DAMS to help dealers target specific sectors with workplace refits and new furniture installations. This led to enquiries that otherwise would not have been received.”
Beaumont says super deduction provided “a great example” of how the group’s managed services benefit its wider membership, without individual dealers having to do the legwork.
“Rather than members having to fully research the scheme and identify the opportunities, we built communications into the email and social media campaigns we ran on their behalf. These generated interest from end customers for furniture on the back of it – in some instances even before dealers were aware themselves!”
A recent update from the Office of National Statistics (ONS) revealed that business investment in the UK rose by 0.7% in the January-March 2023 quarter, following a 0.2% fall in the previous three-month period.
“The primary driver of growth in Q1 2023 was ICT equipment and other machinery and equipment. This coincides with the end of the temporary tax relief on qualifying capital asset investment, known as ‘super deduction’,” wrote the ONS in its 12 May bulletin.
The government agency added: “There was a significant increase in respondent comments to our Quarterly Acquisition and Disposal of Capital Assets Survey referring to super deduction this quarter. More businesses stated they had increased investment in the latest quarter to take advantage of super deduction ahead of its closure. These comments suggest businesses both brought forward planned investment and invested in capital they would not have otherwise to take advantage of the [scheme].”
At the start of April this year, the policy was replaced by a 100% full expensing capital allowance. While, on the face of it, this doesn’t sound as generous as the previous 130%, there is more to it than meets the eye.
“There are in fact a lot of similarities with super deduction,” says Gurj Sandhu of Azets, the financial partner of BOSS. “Full expensing will essentially provide the same benefit for the same qualifying expenditure because the corporation tax rate has increased to 25% from 1 April 2023.” This actually means it is slightly more beneficial, not less as many people assume.
“100% of the cost of the expenditure is deducted against the 25% corporate tax rate,” explains Sandhu. “That equals 25p in the pound. Super deduction provided up to 24.7p of tax relief for every £1 incurred on qualifying expenditure.”
Sandhu says the main difference is there is no contracting date for full expensing. “Expenditure must be incurred between 1 April 2023 and 31 March 2026,” he notes. “Super deduction had a strict requirement as the contract to acquire a qualifying asset had to be agreed on or after a certain date (3 March 2021).”
As the ONS report showed, the end of super deduction may have been a factor in an uptick in business spending. The new timeframe will hopefully give companies more comfort in knowing they can accelerate tax savings over a longer period, and Sandhu advises full expensing to be promoted early in a financial year.
“The time it takes to complete a large capital property project can be considerable. Given there is a three-year window, businesses need to understand the impacts of full expensing now. This is also important when ordering large pieces of equipment as the lead times on delivery can be significant and payment structures complex – both have an impact on how and when capital allowance claims are made.”
There is a caveat. According to the Association of Taxation Technicians, full expensing will not benefit 99% of the country’s businesses, just those which spend less than £1 million on plant and machinery. It says the vast majority of companies (including sole traders and LLPs that are not eligible for full expensing) will look to take advantage of the recent rise in the permanent level of the Annual Investment Allowance (AIA) from £200,000 to £1 million.
In many ways, the AIA is more flexible than full expensing, while offering essentially the same tax relief advantages on capital expenditure. Resellers should therefore arm themselves with the latest information from their trade association and dealer group for all the ins and outs of the available tax relief schemes and how they can pitch the benefits to existing and potential customers.