UHY Ross Brooke Chartered Accountants

Sting in the tail

plant and machinery corporation tax

In order to incentivise companies to invest in capital spending in the short term, the Government have announced a 130% super deduction for investment in plant and machinery between 1 April 2021 and 31 March 2023 (pro-rated in some cases).

With corporation tax rates currently at 19% that will give an effective tax relief of 24.7% and companies will quite rightfully be looking to take advantage of this time limited tax break.

However, what many may not be aware of is the potential sting in the tail. If these assets are sold before 31 March 2023 the sale proceeds will also be subject to the same 130% factor (pro-rated in some cases).

If the company expects to hold onto the asset for many years that may not be a problem but bearing in mind that headline corporation tax rates are expected to rise to 25% any disposal of these assets in the period to 31 March 2023 could give an effective tax charge at the tapered rate on at least an element of the sale proceeds of 34.45%. That’s a very significant tax hit.

Businesses now looking to take advantage of the 130% Super deduction rate do really need to think carefully about future plans and whether it is sensible to claim or not.

Next steps

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