What does super-deduction tax allowance mean for optical practices?

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Recently announced in the latest spring budget 2021 from Rishi Sunak.

What is it? 
From 1 April 2021 until 31 March 2023, limited companies investing in qualifying new equipment will be able to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments. The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest. As the current corporation tax rate is 19% (19p in the pound) then this 25p relief is actually a 131.5% benefit.
What does this mean for optical practices? 
This is excellent news for optical practices wishing to invest in equipment, shopfit and technology. However, please be aware of your VAT de-minimis status and funding via a finance lease.
Traditional leasing is not eligible for super-deduction. 
The great news is though, there is a solution…. 
Long Funding Lease:
This is a hybrid Lease which allows you to reclaim VAT during the course of the term and also claim the (AIA) Annual Investment Allowance and as such the super -deduction tax allowance.
So, in short
If you stay within de-minimis and would like to claim the new super-deduction, then consider a Long Funding Lease.
If you break de-minimis and cannot reclaim VAT, then a straightforward Hire Purchase will likely be your best funding solution.

Example 1 – OCT purchase.

Asset cost: £25,000 + VAT
Tax relief with super-deduction: £6,250 + VAT (previously £4,750)

This is calculated as follows: 25,000 x 0.25 = 6,250 as you gain 25p tax relief for every £1 investment.

Example 2 – £50,000 investment.

Asset cost: £50,000 + VAT
Tax relief with super-deduction: £12,500 + VAT (Previously £9,500)

This is calculated as follows: 50,000 x 0.25 = 12,500 as you gain 25p tax relief for every £1 investment.

Super-deduction key point summary:

  • Effective from 1st April 2021 – 31st March 2023
  • Relevant for all Ltd Companies. Not sole traders, partnerships, or LLPs at present.
  • 130% super-deduction capital allowance on qualifying plant and machinery investments.

Great news for optical practices, trading as Ltd Companies, wishing to invest in equipment, shop-fit and technology.

  • As the current corporation tax rate is 19% (19p in the pound) then this 25p relief is actually a 131.5% benefit
  • Small to medium practices need to be aware of VAT de-minimis and funding via a lease as traditional leasing is not eligible for the super-deduction.
  • A Long Funding Lease (85-month term) is available, which preserves the VAT de minimis limit and allows the customer to claim the Annual Investment Allowance such as the super-deduction tax allowance.
  • If a practice breaks VAT de minimis, a Hire Purchase facility can be arranged to spread the cost and be eligible for the super-deduction claim.

Speak to one of our expert advisors on: 01536 52 96 96 or contact optical@perfin.co.uk

www.performancefinance.co.uk/contact-us/