While the UK recovers from the economic disruption of covid-19, the Government has been looking at ways in which they can incite further capital spending. In aesthetics, we too need to be aware of what tax reliefs we can leverage to aid our recovery.
In March 2021, The Chancellor unveiled an unprecedented tax relief: the new Super Deduction. From 1 April 2021 until 31 March 2023, companies investing in qualifying “new plant and machinery assets” will be able to claim a 130% super-deduction capital allowance on qualifying investments. This gives relief at 130% of the qualifying cost. In simple terms, you get a huge tax break on investing in new equipment for your business, saving you corporation tax.
If all the qualifying criteria is met, for every pound a limited company invests, its taxes are cut by 24.7p. This means that if a limited company purchases a qualifying asset for £10,000, the eligible expenditure would be £13,000, resulting in a corporation tax saving of £2,470.
HM Treasury reports that, “Much of the UK’s productivity gap with competitors is attributable to our historically low level of business investments. Weak business investment has played a significant role in the slowdown of productivity growth since 2008”. The Super Deduction temporary tax break is intended to encourage businesses to invest in capital and expected to reduce this productivity gap.
HOW DOES THIS APPLY TO CLINICS?
“Plant and machinery” can be construed in different ways. As a brief explanation; accountants categorise items bought within a business as capital spending or capital expenditure. Capital expenditure is usually large assets (plant and machinery), with a longer lifetime usefulness to the business.
HMRC states: “Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.” This means that this deduction could potentially be used to purchase new clinical equipment, lasers, laptops or any similar tangible asset that the company could class as long-life items. On the other hand, normal revenue expenditure would be items with a short life span such as clinic consumables.
Revenue expenditure that is wholly and exclusively for business use is deducted from the business income to reduce taxable profits, therefore reducing the tax liability. Capital expenditure is given tax relief via a system called Capital Allowances. The business can deduct capital allowances from its profit to reduce its corporation tax liability. The capital allowance system in the UK has been around since the late 1940s, developed to recover from WWII. Fast forward to now, and the Super Deduction is intended to kickstart The Chancellor’s recovery plans from covid-19. We need to take advantage of it.
I would always suggest speaking with your accountant first, but if there are assets that you were planning to invest in later down the line, it may be very beneficial to consider moving these plans forward to reap the benefits of the Super Deduction. However, as an accountant it would be remiss of me to inform you of these benefits without putting a few health warnings in place. Below is the “small print”; some important information I would like you to read before getting your equipment suppliers on speed dial:
• The temporary tax relief is available to limited companies, not sole traders or partnerships.
• The 130% relief can only be claimed against new equipment that is bought outright or using a method of finance that means you obtain outright ownership at the end.
But what if you lease your equipment and don’t buy it? There may be good news on the horizon. Many trade bodies have been lobbying the government on your behalf – in this day and age leasing has become a much more agreeable option to business owners.
The FLA (Finance and Leasing Association) is particularly vocal in its attempts to persuade the Government to consider its position here – so hold tight for some potential changes to come).
• There are also special treatments of how we account for the disposals of the assets eligible for the Super Deduction tax cut. When any asset is no longer used by a company it is likely to be sold or given away. “Disposal proceeds” is the term used for the profit made as a result of a sale of an asset (or if the item is given away, then the market value of the asset is accounted for as “disposal proceeds”).
When an asset that has had the Super Deduction tax cut is disposed, the 130% of the actual disposal proceeds would be treated as disposal proceeds., triggering an immediate charge in the accounts.5 This disposal “clawback” rule may considerably reduce the real value of the Super Deduction. Therefore, speak to your accountant before deciding if you’ll take advantage of this tax relief.
1. HMRC www.gov.uk – Super Deduction
2. HM Treasury – Super Deduction
3. HMRC www.gov.uk – Plant & Machinery
4. Finance and Lease Association – Super Deduction
5. Peter Rayney – Accountancy Daily – Croner
Samantha Senior is the founder and owner of The Aesthetics Accountant. Counting some of the industry’s most celebrated professionals as clients, the company provides traditional accountancy services as well as strategic planning for tax efficiency and assistance with key decision making to ensure financial optimisation. Follow her on Instagram: @ the_aesthetics_ accountant