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Harnessing the power of super-deduction for business growth

by Wanda Rich
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It has been a number of months since chancellor of the exchequer, Rishi Sunak, stood up in the House of Commons to announce the Budget statement for 2021. And this year, it came as no surprise that economic recovery took precedence – outlining governmental measures that would not only help businesses to experience financial revival post-pandemic, but also protect the country’s jobs.

As part of the widely anticipated Budget agenda, Sunak introduced ‘super-deduction’ – what he described as ‘the biggest business tax cut in modern British history’. But what does it actually mean for companies and why should leaders consider it as part of their recovery-driven growth strategy – if they have not already?

David Baum, regional managing director of ABL Business’s South West office, explores how harnessing the power of thesuper-deduction tax break can not only help bolster long-term business growth and promotive productivity, but stimulate investment and drive an economic uplift – enabling members of the business community to both uphold and strengthen their future marketplace position.

David Baum, Regional Managing Director, ABL Business

At its most basic level, super-deduction enables organisations to claim 130% first-year relief on investments in qualifying main-rate plant and machinery, between 1 April 2021 and 31 March 2023. As a result, this allows firms to cut their tax bill by up to 25p for every £1 they invest.

The option for enterprises to buy asset finances and offset them against corporation tax is an entirely new concept for the UK – and one which evidently has the future at its heart.

However, to benefit from super-deduction, companies need to directly own the asset in question, meaning it is not compatible with leased equipment. But it is available with hire purchases, as firms have the option to buy the asset at the end of the agreement, subsequently owning it.

Regarding the assets that qualify for super-deduction, these include – but are not limited to – agricultural machinery, electric vehicle charge points, solar panels, office furniture, compressors, computer equipment, and more.

A financial enabler to an investment-led recovery

Throughout the pandemic, the government has implemented many support schemes for companies – from the widely adopted furlough programme to the Coronavirus Business Interruption Loan Scheme (CBILS) – in a bid to help organisations keep on trading and retain their workforces.

But regarding why the super-deduction plan should be considered by decision-makers, it ought to be seen as an enablement tool for those looking to futureproof and bolster their existing business models. It allows corporate spending plans to be brought forward – and advancing expenditure can help to pave the way for accelerated growth.

In truth, when outlining why the government is introducing the increased capital allowance scheme, it ultimately comes down to stimulating business investment – and it believes that these measures can not only foster wider economic upturn but also counteract business cycles.

The government has made it no secret that since the onset of the coronavirus, existing low levels of business investment have fallen – with a reduction of 11.6% between Q3 2019 and Q3 2020. But the truth is that business productivity has been dormant, and investment has been slowing since the economic downturn of 2008 – and this was further compounded when the UK announced it would be leaving the EU in June 2016. Therefore, companies have been dealing with uncertainty for a long time – not knowing what to prepare for and what it will mean for their firm, much like the events of the past 12-plus months.
But with government-backed support– such as super-deduction – to invest in their company, this will see corporate leaders able to reap the return on investment much quicker, as well as make the country’s capital allowance scheme a more globally competitive one.

In relation to the UK’s business investment, Oxford Economics expects this to grow at a much more rapid rate than compared to other G7 countries – owing to the two-year super- deduction tax break.

Knowledge is power that drives future change
Throughout the pandemic organisations across the board have been exposed to new challenges – all of which have required immediate attention. With continued ambiguity, there was little time and headspace for planning ahead – seeing 2020’s corporate strategies being abandoned, and unavoidable knee-jerk decisions driving companies forward.

However, while times have been tough, organisations have learnt a lot since March 2020 – and they have adapted their working practices and made their operations more agile accordingly, some have even pivoted their entire propositions. In other words, knowledge and experience have become power, and many firms – while still recovering from the economic impact – are back in the driving seat and looking ahead to the light at the end of the tunnel.

It is therefore fair to say that while there is still a long way to go until economic uplift returns to pre-pandemic levels, super-deduction can play a key role in helping to propel the UK towards an investment-led recovery. With this in mind, now is definitely the time for businesses to start thinking about the part they play – planning for the future and the financial health of not only their organisation but that of the country.