The impending corporation tax hike from 19% to 25% for businesses reporting profits of £250K or more was one of the less welcome changes brought in by the 2021 budget and met with a mixed response from the business community. The changes come into effect from April 2023, with corporation tax being applied on a sliding scale, from 19% on small businesses filing £50,000 or less in annual profits, to the full 25% on everything in excess of £250,000. Many businesses were critical of the move because, like many tax increases, the bulk of the burden is likely to fall on successful SMEs rather than large corporations, with the risk of the 6% hike deterring investment in growth at a time when it is sorely needed.
‘Super Deduction’ On Capital Asset Investments
This being said, there was a silver lining to the tax increase in the form of temporary but generous corporation tax relief on some capital asset investments in the two years from April 2021 to 2023. This is set to especially benefit engineering and manufacturing companies who take this opportunity to invest in new plant and machinery.
For new plant and machinery, the measure allows a ‘super deduction’ of 130% of the value of the machinery – a potentially huge tax windfall and saving on major capital investments. This includes a 50% allowance on most new plant and equipment investments in the first year. So, for SMEs that have been considering upscaling their machinery, or replacing their current production plant with newer models, the years 2021 to 2023 provide a golden opportunity.
The question on everyone’s lips is, of course: is the incentive enough to encourage companies to bring investment plans forward and to get the manufacturing sector moving again? We are hopeful that yes, it will. If companies are making profits, the tax relief could save them 25p per pound on their tax bill, so if they’re making money, it’s sensible to make the move to invest now.
Next Steps – Time To Grow!
If you’re thinking of investing in new machinery, or of using the Covid recovery to expand your business into new markets, have a chat with our engineering specialists at Hone All today and see how we can help. After a difficult and challenging year for the sector, the future is finally looking more hopeful.