At present, companies buying plant and machinery (computers, machinery, furniture, vans, that kind of thing - not cars, though) can claim the Super-deduction. This means that for every £1 they spend, they save tax as if they’ve spent £1.30. Since corporation tax is currently 19%, this means they effectively save tax at 24.7% on those purchases this year.
This was put in place because corporation tax is going up in April 2023, and if nothing was done then companies would have deferred those purchases until then. The Super-deduction was designed to put companies in a broadly similar position whenever they bought stuff, so as not to discourage investment.
So, with corporation tax going up in April, and the Super-deduction being withdrawn, does that mean it’s not worth thinking about when you buy new assets? Not necessarily! There are actually going to be three corporation tax rates in place:
- Companies with profits under £50,000 will still pay tax at 19%. If you know your company will have profits of less than £50,000 each year, you should invest before the end of March. You’re effectively saving 24.7% this year, not 19% next year, a big saving.
- Companies with profits over £250,000 will pay tax at 25%. If you know your company will have profits of more than £250,000 each year, it doesn’t really matter when you invest. A 24.7% tax deduction this year and a 25% tax deduction a year later are more or less the same.
- Profits in between £50,000 and £250,000 will effectively be taxed at 26.5% - a “catch up” rate to go from 19% to 25%. If you know a purchase will reduce your profits from less than £250,000 to more than £50,000, arguably you might want to wait until next year to invest, as saving 26.5% is better than saving 24.7%. But it’s only a bit better, so you might as well just buy whatever it is as soon as it’ll be useful to you!
(Things are a bit more nuanced for companies that don't have a 31 March year-end, who won't get the full 130% deduction - but they'll still get more than 100%).
Of course, you should never buy anything solely to save tax! You buy things to ultimately pay MORE tax, not less. But if you’re going to buy something, the good news is that you’re not going to go far wrong by just getting it as soon as your company needs it.
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