Too few SME businesses are yet taking advantage of super allowances for the incentives to have any positive effect on the wider UK economy, according to a leading tax expert.
Becky Maguire, Tax Partner with UK Top 10 firm Azets in Yorkshire, describes the introduction of super capital allowances during the Spring Budget 2021 as an unexpected boost to companies, but there is a risk of the relief having little impact unless more businesses start using the enhanced tax deduction before it is withdrawn in 2023.
The super allowances available include the super deduction, a 130% first-year allowance for expenditure on main pool qualifying assets such as machinery, furniture, fittings, computers etc, and the enhanced special rate, a 50% first-year allowance for assets including integral features in buildings such as electrical, water and heating systems.
These are in addition to the existing Annual Investment Allowance (AIA) which permits 100% relief for up to £1 million of expenditure incurred each year on qualifying plant and machinery assets, until 31 March 2023.
According to the Office for National Statistics (ONS) the uptake rate of the super deduction scheme still remains unclear but “early evidence suggests super deduction claims are building more slowly than expected”.
Becky Maguire, Tax Partner at Azets, said: “Business investment accounts for a significant part of GDP and is crucial to boosting long-term growth and productivity. The introduction of the super deduction was positive for many companies as it has no upper limit and broad eligibility across a range of assets.”
“The lack of uptake of super allowances is likely due to a number of factors. Uncertainty plays a part, with the ever-present threat of stricter Covid measures impacting retail and hospitality businesses in particular. We know that some businesses are also struggling to accelerate expenditure due to supply chain and project management issues and with the super relief set to expire in just over 12 months, may not be able to accelerate their spending to take full advantage of it.
“With the Chancellor set to make his Spring Update speech on 23 March, it will be interesting to see if he decides to extend the window for the super deduction further and / or narrow its application to focus on greener assets.”
Becky Maguire is urging businesses to review their ability to invest now and use the incentives available to them whilst they still can.
She concluded: “Business owners should look carefully at the timing of planned investment in new assets to take full advantage of the enhanced allowances. Up to 31 March 2023, the additional tax savings through super allowances will be most beneficial to companies that have already absorbed the 100% relief available through the AIA. Businesses should seek professional advice from specialist firms to maximise and accelerate the available tax incentives.”
