UK Government to continue with 6% point rise of corporation tax.
The chancellor has confirmed that the planned increase in Corporation Tax to 25% (from 19%) will go ahead, starting on 1st April 2023. However, there were some valuable tax incentives introduced that will enable UK businesses focused on growth and investment to offset this hike and set themselves up for future success.
One of the main tax giveaways in the UK budget this week was the introduction of full expensing of capital allowances for the next three years. This is great news for companies that incur substantial expense on plant and machinery as, in many cases, they should be able to obtain a full corporation tax deduction in the year the expense is incurred.
How can your transport or rental business make the most of these incentives…
❯ Full Expensing Capital Allowances
From April 2023 Limited companies can fully expense investments on qualifying plant and machinery investments including Road Tankers. This approach will help to offset the increased Corporation Tax burden but also increase capacity and revenue generation potential in future years.
This new relief offers 100% first-year allowance and is designed to give the same amount of relief in cash tax terms that would have been available under the super-deduction scheme.
Here’s a quick example…↘
Scenario 1: Company A makes a pre-tax profit of £500,000. Corporation Tax on this at 25% will total £125,000 leaving Company A with a Profit After Tax of £375,000. Balance Sheet Reserves will increase by £375,000.
Scenario 2: Company B also makes a pre-tax profit of £500,000 but invests £200,000 in new Road Tankers. The Company can deduct 100% of the cost of the Tankers from its Tax Calculation. Corporation Tax on the net amount of £300,000 at 25% will total £75,000 leaving Company A with Profit After Tax of £225,000.
By investing Company B has reduced its tax burden by £50,000 and Balance Sheet Reserves will increase by £425,000 (£225,000 profit plus new Tankers worth £200,000); the investment in new Tankers will also increase capacity for future years.
❯ Annual Investment Allowance
Small Businesses (including sole traders and partnerships) can also benefit from a valuable tax incentive introduced in the 2023 Spring Statement.
The Annual Investment Allowance previously offered support equivalent to full expensing capital allowances for investment in qualifying plant and machinery including Road Tankers however the limit of relief was capped at £200,000. This limit has now been permanently increased to £1million from April 2023 giving businesses an additional £800,000 headroom.
To make the most of the investment incentives available to you…
Contact us today to find out how we can help you take advantage of the new capital allowances and improve your transport fleet with reductions on taxes and maintenance costs.
30th April 2023
Posted by: Ciar McEldowney