Fiscal Policy - What is the Super-Deduction Tax Relief?
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Last updated 17 Feb 2023
The UK government introduced a new tax relief scheme called the Super-deduction tax relief in March 2021, which aims to encourage businesses to invest in new plant and machinery assets. The scheme is available to all companies, including small businesses.
Under the Super-deduction tax relief scheme, businesses can claim a 130% super-deduction on qualifying plant and machinery investments made between 1 April 2021 and 31 March 2023.
This means that for every pound spent on qualifying investments, businesses can reduce their taxable profits by an additional 30 pence. This is in addition to the normal tax relief that businesses can claim on these assets.
For small businesses, this could mean significant tax savings and an incentive to invest in new equipment and machinery.
For example, a small business that invests £10,000 in qualifying plant and machinery assets could claim a £13,000 deduction from their taxable profits, reducing their corporation tax bill by up to £2,470.
To qualify for the super-deduction tax relief, the asset must be new and not second-hand, and it must be used for business purposes. Qualifying assets include items such as computer equipment, vans, and machinery used in manufacturing.
Overall, the Super-deduction tax relief is designed to encourage investment and support economic growth in the UK by making it more attractive for businesses to invest in new equipment and machinery.
Small businesses can benefit from this scheme by reducing their tax bill and investing in the tools and equipment they need to grow their business.
The UK has a relatively low share of capital investment as a share of GDP and this is one policy designed to stimulate investment particularly among small businesses.
Importance of small businesses to the UK economy
According to the Federation of Small Businesses, there were 5.9 million small businesses in the UK at the start of 2020, accounting for 99.9% of all businesses. Small businesses are defined as those with less than 50 employees.
The contribution of small businesses to the UK's economy is significant. According to the Department for Business, Energy & Industrial Strategy, in 2019, small businesses accounted for:
- 52% of all private sector employment, employing 16.8 million people
- 44% of total turnover in the UK private sector, generating £2.3 trillion in revenue
- 48% of private sector exports, contributing £263 billion to the UK economy
In addition to their economic contributions, small businesses also play a vital role in local communities and are often the source of innovation and entrepreneurship. They can create jobs and provide goods and services that meet the needs of local consumers.
However, small businesses also face unique challenges, such as limited access to finance, regulatory compliance, and competition from larger businesses. The UK government has implemented a range of policies and support measures to help small businesses, including access to finance, training and advice, and tax relief schemes like the Super-deduction tax relief mentioned earlier.