Enterprise Small Business Newsletter

BUSINESS & COMMERCIAL

ENTERPRISE

Newsletter

www.albertgoodman.co.uk JUNE 2021

CHARTERED ACCOUNTANTS, TA X CONSULTANTS & FINANCIAL PL ANNERS

welcome After the most challenging 12 months that many businesses have faced finally there seems to be some optimism on the horizon. With things beginning to return to relative normality now is a great time for businesses to take stock of what they have learnt during the pandemic and build upon it. Many retail businesses have diversified into online operations and many food businesses have adapted to delivery. If you are in business-to-business perhaps you have a new flexible working model for your staff that has increased productivity. All these changes have the potential to continue to have a positive impact on businesses even once things look much more like they did before March 2020.

Amongst the pandemic, the impact of Brexit on some businesses has seemed largely forgotten, however, in this edition of the Enterprise we have included a useful article on importing goods post-Brexit. We also have tips on making the most out of cloud accounting for your business and on why a personal tax account might be useful for a business owner.

I hope you find one or two useful nuggets in the newsletter, and if you would like further information on any of the articles please do not hesitate to get in touch.

Mike Cahill Partner

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CO N T EN T S

P R I V AT E C L I E N T

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Upcoming Tax Deadlines

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How can a Xero health check help you?

Have you got a Personal Tax Account (PTA)?

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Temporary extension to loss relief rules - A quick summary for companies

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VAT Liability for electric vehicle charging through charging points in public places

08 - 09 Switching to cloud-based accounting solutions 10

SEISS update

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Property Investment company - A good idea?

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Post-brexit issues with import VAT

13 Forms P11D - Benefits in kind 14

Covid-19 loan support

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The super-deduction and what to watch out for ENTERPRISE NE WSLE T TER

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UP CO MING TA X D E A D L INE S JULY 2021 6th

Deadline for submission of P11D(b) and P11D benefit forms. Individual P11Ds must be provided by employees by the same date.

19th

Deadline for payment of Class 1A National Insurance to HMRC from P11D(b).

Date funds must be cleared by if paying by cheque.

22nd

Deadline for payment of Class 1A National Insurance to HMRC from P11D(b) if paying electronically.

31st

Payment deadline for 2020/21 2nd Payment on Account.

OCTOBER 2021 5th

Deadline to register with HMRC if you became self-employed or started letting a property during the tax year ended 5 April 2021.

31st

Deadline for paper filing of self-assessment tax returns for the year ended 5 April 2021.

DECEMBER 2021 30th

Deadline for electronic filing of self-assessment tax returns for the year ended 5 April 2021 where the tax liability is less than £3,000 and is to be collected by the PAYE code.

JANUARY 2022 31st

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Deadline for electronic filing of self-assessment tax returns for year ended 5 April 2021.

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HOW CAN A XERO HEALTH CHECK HELP YOU? Did you know that we can perform a ‘Health Check’ on Xero accounting records? The result of our work is a report detailing areas for consideration and suggestions to improve the records, save you time and aide your business management.

What we do: 1. We check that the set-up of your subscription is in line with the needs of and our expectations for your business 2. We review your Xero data for consistency or potential missing information 3. We suggest areas for improvement in data quality or automation We split the Health Check in to two parts: Initial discussion and scope We will discuss with you: your use of Xero, your business and any other aspects that may impact the Xero data. We will use the information gathered to help us tailor the outcomes of your Health Check.

Data-check and report compiled We will run our checks and complete a written report detailing our findings, suggestions for improvements to the data or use of apps, and a conclusion on the overall health of your Xero records.

If you think you could benefit from a Xero Health Check please contact xero@albertgoodman. co.uk or speak with your usual AG contact.

Clare Blackmore Director of Cloud Accounting clare.blackmore@albertgoodman.co.uk

HAVE YOU GOT A PERSONAL TAX ACCOUNT (PTA)?

Although we may look after your tax affairs, including your annual tax return, it is still a good idea to set up a PTA for yourself which enables you to: • Check your state pension and history of National Insurance contributions - this is really useful and enables you to see your National Insurance record which counts towards your state pension. You can see how many qualifying years you have recorded and if there are any gaps. If there are gaps then it may be possible to make voluntary contributions to buy in extra years.

• Report a change in circumstances for tax credits - if you have tax credits you can quickly and easily report changes to HMRC through the PTA to ensure that you receive the correct amount of tax credits and do not end up running up over or underpayments as your circumstances change.

• Check your PAYE details - if you have employment income you can use the PTA to check the details of your employment, pension and other income information which HMRC holds and correct anything that is wrong as well as view details of how your tax code has been worked out. You can also claim tax relief for home working, which will be relevant for a lot more people as a result of the pandemic.

To set up or access your PTA visit www.gov.uk/personal-taxaccount

Paul Hake Partner

paul.hake@albertgoodman.co.uk ENTERPRISE NE WSLE T TER

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T E M P O R A R Y E X T E N S I O N TO LO S S R E L I E F R U L E S - A Q U I C K S U M M A R Y F O R CO M PA N I E S In the March Budget it was announced that there would be a temporary widening of the loss relief rules.

This is to help businesses hardest hit during the pandemic so that they can carry back losses and claim any tax paid on profits in the previous 3 years.

The current rules are that companies can use losses firstly against any other profits or gains in the current year and then carry back any remaining losses against profits from the same trade for the previous 12 months. There are also some additional special rules for businesses in the final 12 months of trading, which I won’t go into in this article.

The new tax relief will be available to companies who have an accounting period ending between April 2020 and April 2022. There is a cap of £2m on the amount of tax relief a company can claim during the extension period and if the loss is less than £200k then you can submit a claim outside of the corporation tax regime and obtain a tax refund sooner.

Example: ABC Limited made a loss of £200k for the accounting period ended 31 March 2021. In the year to 31 March 2020 the company had trading profits of £100k. In the year to 31 March 2019 the company had trading profits of £75k and in the year to 31 March 2018 the company had trading profits of £50k.

Under the previous rules ABC Limited could have carried back £100k of the loss to reclaim the tax paid in the previous year in full. ABC Limited would then

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have losses to carry forward and offset against future profits from the same trade of £100k.

With the new temporary extension ABC Limited could carry back £100k of losses to 31 March 2020, £75k of losses to 31 March 2019 and reclaim the tax paid in both these years in full. The remaining £25k of losses could be offset against the £50k profit made in the year to 31 March 2018, meaning half of the tax paid for the year to 31 March 2018 could be claimed back.

A key point to remember is that sometimes companies can make an accounting profit for an accounting period (as shown on your annual accounts) but make a loss for tax purposes, due to the tax relief claimed on capital expenditure.

Please get in touch with your usual Albert Goodman contact if you would like more detail on the above and we will be keeping a close eye as always on maximising tax reliefs for our clients.

Luke Warren

Manager

luke.warren@albertgoodman.co.uk

VAT LIABILIT Y F OR ELEC TRIC VEHICLE CHARGING THROUGH CHARGING POINTS IN PUBLIC PL ACES HMRC have recently issued guidance on the VAT treatment of the provision of electric vehicle charging points.

They have confirmed that supplies of electric vehicle charging through charging points in public places should be charged at the standard rate of VAT. There is no exemption or relief that reduces the rate of VAT charged.

Recovering input tax for charging electric vehicles.

VAT can be reclaimed on charging an electric vehicle if all of the following apply: • you are a sole proprietor • you charge your electric vehicle at home • you charge your electric vehicle for business purposes A sole proprietor must calculate how much of the vehicle charging is for business use and how much is for private use. VAT can only be reclaimed on the business use amount. The usual input tax rules apply, e.g. a VAT invoice must be held.

Sole proprietors can recover the input tax for charging your electric vehicle for business use at other places. The rate for recovery of input tax for charging electric vehicles is the same as the VAT rate charged on the supply of electricity. Again the usual input tax rules apply and an adjustment should be made for private use.

Employees charging an electric vehicle (which is used for business) at home.

VAT cannot be recovered because the supply is made to the employee and not to the business.

Employees charging an employer’s electric vehicle (for both business and private use) at the employer’s premises.

The employee must keep a record of their business and private mileage and calculate the amount of business use and private use for the vehicle.

You can recover the full amount of VAT for the supply of electricity used to charge the electric vehicle. This includes the electricity for private use. However VAT will be payable on the electricity relating to the private use.

Alternatively the VAT reclaim can be restricted to the business element only. The usual input tax rules apply.

Summary Whilst this clarification is welcomed, for a small business owner running a Limited Company from home, no VAT recovery will be available for electricity used to charge a vehicle for business journeys, as this would fall under the category of “employees charging an electric vehicle at home”.

If you have any queries on this, please contact me or your usual Albert Goodman contact.

Richard Taylor VAT Manager

richard.taylor@albertgoodman.co.uk ENTERPRISE NE WSLE T TER

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SWITCHING TO CLOUD-BASED ACCOUNTING SOLUTIONS In this case study, we look at the steps taken by Taunton Vale Sports Club to reduce the amount of time spent on bookkeeping from 1-2 days per week to 1-2 hours per week.

The obvious first step was to move to a cloud-based accounting solution, Xero. This allowed for the bookkeeping to be dealt with from anywhere with an internet connection, and the associated app is particularly useful to take advantage of ‘dead-time’ to catch up on bookkeeping, for example waiting in line, on the commute, or even on the toilet!

Once Xero was in use, Bank feeds were set up, saving the time spent manually inputting the data from bank statements previously. Xero’s Bank rules feature was utilised for any regular direct debits such as council tax, electricity, gas and rent, meaning a simple click on ‘OK’ on bank transactions Xero has been programmed to recognise deals with a large chunk of transactions each month.

These steps alone helped to save a significant amount of time and most businesses who have made the switch to cloud-based solutions have put these in place. However, Xero also has a growing app marketplace allowing for integration with other systems used in businesses. Taking advantage of these can also save a considerable amount of time, and three in particular were used by Taunton Vale Sports Club:

Hubdoc allows for all invoices to be scanned directly into Xero, either by taking a photo of the invoice 08

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on your phone, forwarding invoices received by email directly to Hubdoc, or grabbing the invoice automatically from larger suppliers.

Once invoices are scanned in to Hubdoc, rules can be set up to automatically post invoices from your regular suppliers to the correct code on Xero, meaning no further data input is required after the invoice is scanned. When the invoice is paid, Xero automatically picks this up and allocates the payment for you, meaning once again a simple click on ‘OK’ in the bank reconciliation page is all that is required to post both the invoice and payment.

Other benefits of using Hubdoc include having an online database containing all invoices, meaning there is no need to dig out invoices for the accountant at the year-end, or go searching for invoices in a paper filing system when required to check something.

Payments by Stripe

Taunton Vale Sports Club’s main income source is taking bookings for its sports facilities. This was previously dealt with manually over the phone with each invoice created using a template in Microsoft Word, before being input manually on to Sage.

An upgrade to an online booking system, Skedda, was the first step taken to streamline this process. As well as saving a considerable amount of administrative time taking phone calls and preparing invoices

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manually, this also allowed for payments to be taken from customers using Stripe, opening up the possibility to use the Stripe App in Xero.

the bank and making sure enough change is held in a float on the club premises was significant and an added bonus is that there are never any cash differences!

The App imports all bookings and payments made using Stripe into Xero automatically and also posts the transfers from Stripe into the company’s main bank account, meaning there is no need to input any sales data manually. Most bookings are from regular customers, meaning Xero learns where to post these over time, saving the need for adding detail to most invoices.

With payments only being taken by card, switching to a cloud based till system run from an iPad, allowed for more integration with Xero. Squareup was chosen, and once set up, a daily sales invoice is created by the till system and posted on to Xero automatically. The card receipts and card fees are also posted automatically to Xero, along with the transfer into the current account, meaning that there is essentially no input required on Xero from the bookkeeper to post the bar takings.

Another benefit of being set up on Stripe is that you can request payment from customers using Stripe when creating an invoice in Xero, providing a quick and easy payment solution for your customers.

Payments using Square

All in all, it is estimated that the time saved by taking the steps above is 10 – 15 hours per week. The aim when the process was started was to only spend ‘five minutes a day’ on the bookkeeping. Whilst this may have been a bit of an over-ambitious target, there have certainly been significant time (and cost) savings from embracing all the cloud has to offer!

Taunton Vale Sports Club also runs a bar for its members and external bookings. The previous till system linked to desktop back-office software with no ability to extract data electronically. End of day processes involved cashing up and manually creating an invoice on Sage/Xero from the cashing up sheets.

Many businesses are making the decision to switch to taking payment by card only. This is not necessarily suitable for all businesses, but being an organisation run mostly by volunteers, this suited Taunton Vale Sports Club. The time saved cashing up, taking this to

Liam Elliott Manager

liam.elliott@albertgoodman.co.uk ENTERPRISE NE WSLE T TER

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SEISS UPDATE The government announced in the budget on 3 March 2021 that there would be a fourth and fifth grant payable under the Self Employment Income Support Scheme (SEISS).

The fourth grant covers the 3-month period; February to April 2021 and the fifth grant is expected to cover the 5-month period from May to September 2021. The closing date for claiming the fourth grant was 1 June 2021, so claims should already have been made for this one but more detail on making your claims in general can be found in my last article on the subject here.

Paying tax on the grant income All SEISS grants are liable to tax and class 4 National Insurance.

They are taxable at the date of receipt and therefore the first, second and third grants will need to be included on your 2020/21 tax return. The fourth and fifth grants will be included on your 2021/22 tax return. This is regardless of your accounting year-end.

You therefore need to ensure details of all grants received are provided to us for inclusion on your tax return.

Depending on your accounting year-end, this may lead to more taxable income in the 2020/21 tax year than you are expecting.

For example, if you normally prepare your accounts to September each year, profits from your accounts for the year to 30 September 2020 (12 months), will be included on your 2020/21 tax return as normal plus the first, second and third grants.

This means that you will be paying tax in the 2020/21 tax year based on a full 12 months trading results plus the first three support payments.

I would therefore urge you to make sure you get your accounts and 2020/21 tax return completed early, to ensure you have as much notice as possible of your upcoming tax bills.

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Anyone preparing their accounts to 31 March or 5 April, will be less affected by this.

Have you claimed incorrectly?

The 2020/21 tax return also includes a new section on it entitled “incorrectly claimed Coronavirus support payments”. If you feel you have claimed a grant that you weren’t entitled to, there is scope to declare and repay this on the return.

It is being widely reported in the press that HMRC will be looking at claims and conducting enquiries into returns. It is therefore important that you consider this when providing us with your return information, and if you have any concerns about the claims you have made please do raise this with your usual point of contact and we can review your case for you.

However, it is important to note that the rules for the third grant onwards state that you do not need to apply hindsight or repay the grant as long as you sensibly considered all factors when looking at your projected position at the time of claiming.

What this means is that if you have fully considered the position at the time you made the claim and concluded that you met the criteria, if circumstances have changed since this time, or perhaps you weren’t affected as badly as first thought, you would not have to repay any grants claimed.

This is a complex area and as time passes, I’m sure more information about the approach HMRC is going to take regarding what they consider to be overclaims will become clearer and we will keep you updated on this.

Katie Hodge

Tax Consulting

katie.hodge@albertgoodman.co.uk

PRO PER T Y IN V E S T MEN T CO MPA N Y - A GO O D ID E A ?

Following tax changes in the last few years there has been a greater interest in holding rental property in a limited company. This can have some advantages but there are also some pitfalls. In this article we will look briefly at this complex subject.

What are the advantages?

Companies pay Corporation Tax, currently at 19% but expected to rise to 25%. If income is accumulated in the company this can represent a significant tax reduction compared with income tax at 40% or 45%. In addition, there is no restriction on the offset of interest paid on borrowings within a company.

Transferring existing property It is relatively straight forward if the company is buying new property directly from a third party. It becomes more complicated where you wish to transfer existing property into your own company.

There are two main taxes to consider. Firstly, there will be a capital gain on disposal of the property and, as you and the company are connected, that will be deemed to be transferred at market value. Secondly, the transfer will be subject to Stamp Duty Land Tax, again based on the market value.

Property Partnerships Specific reliefs apply to both Capital Gains Tax and Stamp Duty Land Tax if your rental business is a property partnership. Capital gains can be deferred if a property partnership rental business is incorporated in exchange for shares [s162 TCGA 1992]. Special rules apply for Stamp Duty Land Tax on the transfer of property out of a partnership where the effective beneficial ownership is unchanged. This would apply

to the transfer of property from a partnership to a company owned by the partners and effectively exempts the transaction from SDLT. The difficulty is in establishing that there is a property partnership in the first instance. The mere joint ownership of property is insufficient. A partnership needs to carry on a business and the courts have interpreted this over the years as requiring more than passive joint ownership. There needs to be an element of activity, and scale, that indicates a business. There needs to be a partnership agreement, partnership accounts and tax returns to demonstrate that it exists. It is perhaps easier to demonstrate this where the partnership is established as a Limited Liability Partnership.

Summary There is, therefore, a possible route to incorporation of a property partnership without a tax charge but this is a complex area and needs to be approached carefully.

If you are considering this, please speak to your normal contact at Albert Goodman at an early stage.

Andrew Law

Senior Tax Manager

andrew.law@albertgoodman.co.uk ENTERPRISE NE WSLE T TER

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POST-BREXIT ISSUES WITH IMPORT VAT New rules came into play on 1 December 2020 which allow HMRC to leapfrog other creditors in the order of priority of payment that applies when a business goes bust. This broadly returns the position to the situation before the preferential status of these claims were abolished in 2003 to promote enterprise.

It is approaching six months since Brexit and many businesses have now completed their first post-Brexit VAT return. This has highlighted a number of issues relating to the payment of import VAT, or rather the lack of payment, on imported goods.

VAT is paid and reclaimed (subject to the normal rules) through their VAT return. The VAT registered business has to download postponed import VAT statements which show the VAT values to be entered on their VAT return.

For most imports of goods into Great Britain from outside the United Kingdom, Import VAT should be payable. If the goods are zero-rated, e.g. books, many food items, no import VAT will be due and there are special rules for consignments valued at £135 or less.

Again, we have seen several examples where the postponed VAT accounting procedure has been used, but customer has not been informed. It is only when the HMRC system was checked that postponed import VAT statements were discovered.

We have seen a number of examples of high value goods arriving from EU suppliers where no Import VAT has been paid. On the face of it this may not seem a bad thing but HMRC will not share this view and if import declarations are not made as required, this may cause problems.

If your business has imported goods valued at over £135 but has not paid any import VAT now is the time to investigate the reasons why. If the deferred declaration option has been used the declaration to HMRC will soon be due. Check the HMRC system to see if there are postponed import VAT statements (Get your Import VAT statement here) or contact your supplier or import agent to ask how import VAT has been handled.

There are a number of ways goods can pass through customs without import VAT being paid: • A temporary relaxation is in place for goods arriving from the EU which does not require HMRC authorisation. This allows the import to be recorded in the records of the GB business (the customer) with the import of the goods being declared made to HMRC within 175 days of their arrival. If a customer’s GB EORI number is given the goods can be cleared through customs with no import VAT payment. The customer has to make arrangements to declare the import to HMRC and pay any duty or VAT due. VAT registered customers have to declare the import VAT on their VAT return covering the date the goods were imported.

The declaration to HMRC would normally be done using an Import or Customs agent as it requires specialised software and access to HMRC systems.

It has become apparent a number of overseas suppliers are using this method to get goods through customs without making this clear to their customer.

• Where the GB customer is VAT registered it is possible to postpone the payment of import VAT. The import 012

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If import VAT has been paid on an importation it is important to make sure the appropriate evidence is held if the import VAT is to be reclaimed. In most cases this will be an import VAT Certificate (which has C79 in the bottom left-hand corner). HMRC issue the certificate by post in the first half of the month following importation of the goods.

If import VAT has been paid but no certificate has been received it is worth checking why not.

If you would like us to review your processes speak to your normal contact at Albert Goodman or email richard.taylor@albertgoodman.co.uk.

There is a government grant scheme for small businesses to help with the cost of training or professional advice on import and export related procedures including VAT. Applications can be made here.

Richard Taylor VAT Manager

richard.taylor@albertgoodman.co.uk

FORMS P11D - BENEFITS IN KIND As we have reached the end of the 2020/21 tax year, thoughts turn to reporting benefits in kind provided to employees. These must be reported to HMRC on form P11D and the deadline for doing this is 6 July 2021. Employers are also required to supply employees who are in receipt of benefits with a copy of their P11D, by this time.

What is a benefit in kind?

This time last year, I wrote an article on the subject, which can be viewed on our website here.

Typical benefits that you may be familiar with include company cars or vans, health insurance or staff loans.

The 2020/21 tax year was far from normal, because of the pandemic. If staff were on furlough the normal benefits they would have received may have stopped or changed, but new ones may have arisen because of different working practices. Careful consideration must therefore be given to the preparation of forms P11D’s for the 2020/21 tax year.

Changes in the definition of what is classed as a van There has been a recent tax case (the “Coca Cola” case) which was won by HMRC. The outcome of this case changes the categorisation of certain crew cab vans as cars. This may yet go to appeal through the courts but based on the current case this will result in changes to the way certain vehicles are treated for P11D purposes for the 2020/21 tax year.

What type of vehicles are affected?

In the Coca Cola case the two vehicle types in question were: • First or second-generation VW Transporter T5 Kombis and • Vauxhall Vivaros.

Coca-Cola asserted that all these vehicles were vans, whilst HMRC argued that they should all be classed as cars. Vans are more beneficial for tax purposes than cars. The First Tier Tribunal found that, as Kombis are multi-purpose, they do not meet the criteria to be

considered as vans and, therefore, should be classed as cars.

The First Tier Tribunal found that the Vivaro, however, could reasonably be classed as a van, but only on very specific grounds. If the second row of seats do not span the width of the vehicle as they do in the Kombi, then the vehicle could be classed as a van due to the extra load space in the centre of the vehicle. The Upper Tribunal agreed with this judgement.

The Court of Appeal, however, has stated that all three types of vehicle are multi-purpose vehicles as they are able to carry both goods and people, and none of them are ‘van-like’ enough so must be taxed in the same way as cars.

For tax year 2020-21 onwards, employers must remember the outcome of the case when preparing P11Ds. Companies may need to carry out reviews of the company vehicles that they provide and should also consider the implications of the ruling of the case when purchasing any additional company vehicles.

This case changes the rules that apply to these vehicles and a review of your fleet should be undertaken to assess if you have any of the affected vehicle types.

If you require any further information on this subject, please contact me or your usual Albert Goodman contact.

Sharron Quick

Senior Manager

sharron.quick@albertgoodman.co.uk ENTERPRISE NE WSLE T TER

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COVID-19 LOAN SUPPORT New rules came into play on 1 December 2020 which allow HMRC to leapfrog other creditors in the order of priority of payment that applies when a business goes bust. This broadly returns the position to the situation before the preferential status of these claims were abolished in 2003 to promote enterprise.

Now that the CBILs application deadline has passed, I want to share with you details of the replacement for CBILs, namely the Recovery Loan Scheme or RLS which is currently due to be in place until 31 December 2021.

The RLS has many similarities with CBILs in that it is intended to support businesses that have suffered a negative impact due to COVID-19 in the form of unsecured lending. However, the key difference is that, unlike CBILs which offered an attractive 12 month repayment holiday with the first years’ interest and fees paid by the government, there is no such repayment holiday or interest / fee benefit under RLS. Despite this, the RLS is still likely to be more attractive than ‘normal’ commercial lending which would almost certainly require a personal guarantee.

Other than that, key terms and conditions are as follows: - 80% government guarantee - No personal guarantees for amounts < £250k - Business must be negatively impacted by COVID-19 - Up to 6 year term for term loans and asset finance - Up to 3 year term for invoice financing and revolving credit facilities

Given the huge amount of lending under CBILs and BBL, many businesses will have adequately addressed their funding needs. However, as things start to unlock and working capital requirements increase and catch-up payments are made on rent / VAT etc, this could easily present further funding challenges.

Equally, I have had a number of conversations with businesses that have drawn down a BBL but which require additional funding. Securing additional funding under CBILs would have required the BBL to be repaid.

However, this is not the case under the RLS so it could be a useful unsecured top-up for businesses that have a BBL they don’t want to repay but which require additional funding.

If this is something that you would like to find out more about, please contact me, or your usual Albert Goodman contact.

Neil Hutchings

Director of Corporate Finance neil.hutchings@albertgoodman.co.uk

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THE SUPER-DEDUC TION AND WHAT TO WATCH OUT FOR In March 2021, the Chancellor announced the new super-deduction capital allowance, which is aimed to encourage investment in the economy over the next two years. However, careful consideration should be taken when looking at this allowance. There are some hidden conditions which were less publicised and can mean the relief isn’t as attractive as it appears at first glance.

Firstly, it is only available for companies, so sole traders and partnerships will not benefit from the relief.

The allowance applies to new plant and machinery purchased between 1 April 2021 and 31 March 2023, and differs depending on the type of asset purchased. There is also no limit on the relief, provided the expenditure is incurred on qualifying assets.

So, how does the allowance work?

• For assets that would normally fall into the ‘main pool’ and attract the 18% writing down allowance, this allowance means that the company benefits from a deduction of 130% of the expenditure.

• For assets that would normally fall into the ‘special rate pool’ and attract the 6% writing down allowance, the company benefits from a 50% deduction in the year of purchase, before resuming the usual 6% deduction per year, on the balance.

There are a number of assets that are excluded from the relief, including used or second-hand assets, cars and plant and machinery purchased for leasing. Be careful to check that the asset you are looking to purchase will qualify for the relief, before calculating the possible tax relief available.

If a company entered into a contract to purchase assets before 3 March 2021, then it also won’t benefit from the relief, even if the expenditure is incurred after 1 April 2021 (in the qualifying period).

A qualifying asset is kept separate to other plant and machinery in the main capital allowance pool. Therefore, if the asset is sold, an immediate balancing charge is created, which is subject to corporation tax. Depending on the timing of the sale, the company may also have to increase the sales proceeds by 130% for tax purposes.

The Chancellor also announced increases to the corporation tax rates. Although the super-deduction might initially create an incentive to accelerate capital

expenditure, this might not result in the most tax efficient position, factoring in the proposed increase in corporation tax.

The following example illustrates this: ABC Ltd has a year end of 31 March, and is planning to spend £75,000 on assets that would qualify for the super-deduction, sometime in the next few years. The company expects to make a profit in excess of £50k per year for the foreseeable future.

If it purchases the assets in the year ended 2022, the super-deduction will result in a tax reduction of £18,252, whilst Corporation Tax rates are at 19% (£75,000 x 130% x 19%).

If it purchases the assets in the year ended 2024, the super-deduction would not be available. However, now the higher rates of corporation tax apply. If profits are between £50-250k, the tax reduction would be £19,875 (£75,000 x 26.5%), or if profits are above £250k, the tax reduction would be £18,750 (£75,000 x 25%).

When making a decision about capital expenditure, it should always be based on commercial need and not just tax relief available. You should complete some calculations to aid the decision-making process.

It’s worthwhile mentioning that the annual investment allowance may be available for assets which do not qualify for the superdeduction. This is capped at £1m for the year to 31 December 2021, set to reduce to £200k after that.

If you have any questions on this, please contact your usual point of contact within Albert Goodman who will be able to assist you further.

Megan Trick

Assistant Manager

megan.trick@albertgoodman.co.uk ENTERPRISE NE WSLE T TER

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