New Tax Relief Opportunities! The Super Deduction Offer

This month began with great news for business! In the latest Budget 2021, the HM Treasury announced new rules for capital investment with hopes of supporting businesses as a recovery measure from the pandemic. Here’s the deal: For expenditure incurred …

Alejandro Auerbach

March 16, 2021

This month began with great news for business! In the latest Budget 2021, the HM Treasury announced new rules for capital investment with hopes of supporting businesses as a recovery measure from the pandemic. Here’s the deal:

  • For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim 130% capital allowances (A huge boost, considering the current 18% rate) on qualifying plant and machinery investments.
  • Under this super-deduction, for every pound a company invests, their taxes are cut by up to 25p.
  • A 50% first-year allowance for qualifying special rate assets (A rise from 6%)

As you can see, the following years will be great for 3D printing investment, we’ll explain why in this article. First, let’s see how we got here.

The Super Deduction Backgrounds

As we recently pointed out in a previous article, 2020 was a challenging year for the economy in general and, particularly, the local manufacturing sector. Driven by unexpected COVID-19 lockdowns and Brexit uncertainty, business investment fell by 11.36% between Q3 2019 and Q3 2020.

But this is an issue that even predates 2020. According to the HR Treasury, weak business investment has played a significant role in the slowdown of productivity growth since 2008. Now, to firmly raise the UK’s international competitivity, the government wants to lift the plant and machinery capital allowance rates from 30th to 1st in the OECD ranking.

What is Capital Allowance?

This subject might be difficult to tackle for those unfamiliar with machinery investment or corporate tax management. That’s why we are here to explain the basics, as simple as possible.  Essentially, capital allowance is an accounting method that enables a valuable reduction in tax costs.

How does it work? Well, let’s start by buying a machine. Contrary to the common misconception of viewing machinery acquisition as expenditure, we must understand it as investing cash into an equivalent value in assets or capital. However, contrary to cash, machines gradually wear out and get obsolete, so you can’t expect to have the same value in the following years; this is what we call depreciation.

So, how do you convey depreciation in your bookkeeping? There are many methods, but we are interested now in understanding capital allowance deduction. By deduction, we mean subtracting the asset’s lost value from the annual profits before taxes. How do we calculate the depreciation value? The answer lies in official capital allowance rates, which take a percentage of the total asset value.

In short, as machinery assets depreciate, deductions must be made from taxable income. So, the higher the capital allowance rates are, the higher deduction from profits will be, and consequently a lower tax bill.

Capital allowance comes in many forms, but the most relevant are:

  • First Year Allowance (FYA): To claim in the tax year of acquisition
  • Annual Investment Allowance (AIA): It is applicable for a fixed maximum of assets purchases. Usually, the amount was up to £200k, but now it increased £1m with a deduction of 100% (Until January 2022)
Markforged Mark Two product image
The Markforged Mark Two can 3D Print Carbon Fibre to replace Metal Parts

Example

To fully understand the impact of the super deduction at scale, let’s see an example with numbers.

For instance, let’s say you buy the Marforged Mark Two for £13,595 (excl VAT).

Now, if your business makes pre-tax profits of £100,000, for instance, you would normally pay tax at 19% = £19,000.

Historically, you would have been able to deduct 18% of the machine cost (£2,447) from your taxable profits when calculating your tax payment. Therefore the £100,000 becomes £97,553, and the tax payable reduces to £18,535 (a reduction in tax of £365).

Comparatively, under the super deduction rules, you can deduct 130% of the cost (£17,674) from your taxable profits, reducing them to £82,326 and therefore reducing your tax bill to £15,642 (a reduction of £3,358). When you compare this super deduction tax reduction to previous rates, you end up saving an extra £2993!

Important Considerations

  • Before making any rash decision, it is always best to carry out good research and consider the views of tax experts and accountants
  • Make sure your case matches the eligibility criteria. For more information and updates, check the official page regularly.
  • Any used or second-hand assets do not apply.
  • Assets acquired for leasing purposes are also excluded.
  • Anti-avoidance provisions will also be introduced to prevent abuse of the super deduction.
  • Unfortunately, any machine acquisition before the Budget announcement (3 March 2021) won’t apply.

Available 3D Printing Solutions

Are you are looking to enhance your business through improving your rapid prototyping process? Investing in 3D printing will reduce the lead time of your products, boost innovation and put you ahead of your competitors.

3D printers specialise in a variety of fields:

Markforged printers can produce components which outperform aluminium in both weight and strength. It’s ideal for producing end use components for mechanical uses.

Formlabs can produce highly intricate products to a the finest of details, details as fine as 0.05mm! Large material selection and few manufacturing constraints give you the freedom to design.

For large scale, rapid prototyping Massivit 3D and Bigrep are the choice for you. Large prototypes can be produce in under an hour, allowing for the speedy innovation and short lead times.

Form 2

Wrapping Up

Undoubtedly, the super deduction is one of the first steps towards a promising future for additive manufacturing and productivity in general. With new investment opportunities, we are excited just to imagine a new breeding ground for innovation.

But, first of all, let’s make sure we can make the best out of this chance, and thus, SolidPrint3D is here to help you. For more information, please call SolidPrint3D on 01926 333 777 or email on info@solidprint3d.co.uk.

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