Guiding your clients through super-deduction and capital allowances
Helping your clients get back on track with their growth aims is obviously a top priority for your accounting firm. And making use of the latest government financial support for recovering businesses is one way to speed up this growth process. The Recovery Loan Scheme is already helping to provide funding to ambitious, cash-poor enterprises. But have you also factored the new super-deduction capital allowance into your planning conversations?
In this post, we look at how super-deduction works. We also highlight the positive longer-term benefits for clients that are looking to purchase new plant and equipment.
Super-deduction is a capital allowance that can be claimed by UK limited companies when buying new plant and machinery assets. The aim is to reduce the expense of purchasing new costly assets and to help businesses invest in the equipment that’s needed for them to grow.
The allowance was introduced by the Chancellor, Rishi Sunak, in the Spring 2021 Budget and will run until 31 March 2023. With the super-deduction, clients have the potential to cut their tax bill by up to 25p for every £1 they invest. This helps to remove the financial barriers to expansion of the business.
If a client’s business invests in qualifying new plant and machinery assets as part of their growth strategy, the company will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance (FYA) for qualifying special rate assets.
Not all new purchases will qualify for super-deduction, so it’s important to understand which assets are likely to be eligible. Once you have an understanding of what it can be applied to, you can maximise the impact of the allowance for your clients.
Most tangible capital assets that clients use in the course of operating their business can be classed as ‘plant and machinery’. It’s these essential items of equipment and infrastructure that super-deduction is aimed at. So for businesses in manufacturing, construction and agriculture, super-deduction could be a financial lifeline.
Assets which qualify for either the super-deduction or the 50% FYA include:
- Solar panels
- Computer equipment and servers
- Tractors, lorries and vans
- Ladders, drills and cranes
- Office chairs and desks
- Electric vehicle charge points
- Refrigeration units
- Foundry equipment
This is not an exhaustive list of eligible assets. You’ll need to do your research with HMRC and check which of your clients’ proposed asset purchases will qualify and which rate is applicable.
At MarketFinance, we believe that there is light at the end of the economic tunnel. It’s time to do more than just ‘talking recovery’ and to begin ‘talking growth’.
Super-deduction aims to kickstart a reinvestment in growth by giving UK companies a strong incentive to make additional investments. Rather than playing the low-risk card, ambitious clients can bring investments forward and aim for growth now. And with the mix of capital allowances that are currently available, there’s real impetus to start investing.
Current capital allowances include:
- Super-deduction that offers UK companies the upper rate of 130% first-year relief on qualifying main rate plant and machinery investments, until 31 March 2023.
- First-year allowance (FYA) for special rate assets that offers companies the 50% rate, until 31 March 2023.
- Annual Investment Allowance (AIA) that provides 100% relief for plant and machinery investments up to a £1million threshold, until 31 December 2021.
- Freeport tax sites that allow companies to access new Enhanced Capital Allowances (ECA+). Freeports also allow companies, individuals and partnerships to benefit from the Structures & Buildings Allowance (SBA+), both until 30 September 2026.
Having meaningful conversations with your clients is the first step towards a productive growth strategy. Circumstances will have evolved, plans will have changed and their financial position will have become less predictable. So, you need to re-align yourself with their situation.
Putting time in the diary to sit down and talk to clients is vital. If you’re going to add value and strengthen their capital position then you need to drill down deep into their current thinking.
- Understanding their current aims and growth plans for the business
- Knowing what plant and equipment needs to be purchased to achieve this
- Getting a handle on their current financial position and working capital
- Looking at where third-party funding and finance may be needed
- Running through the options for capital allowances
- Creating a meaningful business plan that’s tied to a funding and investment strategy
With a solid plan, access to the required funding and the benefits of the appropriate allowances you can quickly green-light a client’s growth plans.
At MarketFinance, we believe that taking proactive action to keep your clients well-funded is the key to their long-term success. Our mission is to make business finance easy. We bring your accounting firm the key routes to finance that clients will need over the course of their recovery.
We can offer:
- Flex loans – where working capital is needed to fund the client’s growth strategy, a flex loan is the ideal solution. The client gets up to £100,000 of flexible working capital to withdraw whenever they need it. They can then repay and reload their balance on a schedule that works for their business.
- Invoice Finance – your clients can boost their cash flow by accessing the money they’re owed whenever they need it. They can choose between pay-as-you-go and subscription options to release the cash value of their invoices so they can reinvest in their business.
Sign up to our accountant partner programme and provide your clients with fast, flexible and hassle-free funding to drive their recovery and future growth.