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Super-deduction Q and A with Patrick Sherrington

Wed 5th May 2021

The government's capital allowances scheme, the super-deduction,  has been designed to boost investment in the UK.

Patrick Sherrington, Managing Director of First Asset Finance, shares his thoughts on the impact of the super-deduction.

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Do you think this scheme will have a positive impact on businesses investing?

For businesses that are generating a profit and need to invest in equipment, this is one of the most beneficial incentives by the Chancellor for a long time. It will have even more impact if the benefit was extended to leasing companies in the UK. This is because most companies looking to invest in new equipment will do so using some form of equipment financing arrangement. Allowing the leasing companies to benefit from this allowance would enable them to pass on this benefit to the clients in the form of lower rentals. Whether the overall impact of this allowance will see a surge in investing remains to be seen, but it is a welcome benefit to those companies that need to invest.

Do you foresee any reason why this scheme would not be beneficial to businesses?

There is some additional tracking of the equipment; companies must track all super-deduction and SR allowance assets until they are disposed of to ensure the correct disposal value is recorded, and a balancing charge is applied. Furthermore, post-April 2023, corporation tax will rise to 25% as opposed to the 19% it is now; so balancing charges will be at a higher tax rate in the future.

What role does asset finance have to play in accessing the super-deduction?

Asset Finance will have a significant role to play for many businesses. Some companies will be cash-constrained after the impact of the pandemic; however, this does not mean that they cannot benefit from the super-deduction. Hire Purchase agreements also qualify for the 130% capital allowance because the hirer will ultimately own the asset at the end of the arrangement. The Hire Purchase option opens up the super-deduction to a much broader group of companies, particularly businesses that do not have significant capital to spend and businesses that want to preserve cash flow as they experience the continuing effects of the pandemic.

Summary

For companies looking to invest or companies unsure whether to invest in new equipment, the significant tax relief afforded by the super-deduction might act as a catalyst. This may push marginal projects into go mode, which, will stimulate growth across the UK economy. This would certainly be the “super” outcome the Chancellor will be hoping for before he sets out his next budget.