Hidden benefit of the corporate tax hike

The increase in corporation tax to 25% has been met with obvious consternation across industry, but for those who want or need to invest in new capital equipment, the increase has a silver lining. The 130% tax relief for the first year provided by the super deduction scheme, introduced in April 2021, now provides more incentive to reinvest in your business.

The Super Deduction can be applied to any new equipment of unlimited value, whether purchased directly or through financing. “When applied to the new corporation tax rate, customers can realize significant savings on new machine tools,” commented Nigel Atherton, Managing Director of XYZ Machine Tools.

“For example, the purchase of a machine tool worth £100,000 would generate tax relief of £130,000 which, at the old corporation tax rate, would save the customer £24,700. With a tax rate of 25%, this savings increases to £32,500. If you kept the £100,000 of profits in the bank, it would cost you £25,000 in tax instead.

“The manufacturing sector has proven to be extremely resilient throughout and after the shutdowns, so the announcement of corporate tax and national insurance increases was a blow,” said he added. “However, we have to look for the positives and, if you are able to reinvest profits back into the business, the added incentive of the Super Deduction Scheme provides that silver lining.”

XYZ machine tools

Luisa D. Fuller