As things stand at the time of typing, the UK Government’s super-deduction tax relief scheme will end on 31st March 2023. The scheme has been running since April 2021, when it was put in place in a bid to encourage businesses to invest in plant and machinery assets that would enable them to boost productivity and grow.
The scheme has allowed companies to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments, as well as a 50% first-year allowance for qualifying special rate assets.
The UK Government sold the super-deduction as an opportunity for companies to reduce their tax bill by as much as 25p for every £1 they invested. Fast-forward two years, and a Confederation of British Industry (CBI) survey has indicated that a fifth of business investment planned while the scheme was in place would not have happened without it. Furthermore, the business organisation said another fifth of investment was brought forward in order to benefit from the scheme.
So, can we say in light of the above that the super-deduction has been an unqualified success? Well, perhaps not quite, as other recent research has indicated that some small businesses were left underwhelmed by the scheme.
The super-deduction seems to have been more attractive for some industries than others
As reported by Business Leader, an independent finance broker recently polled UK SMEs and found that less than half (48%) of those questioned had utilised the super-deduction scheme. Alongside this, more than half of respondents – 58% – expressed the view that the Government wasn’t doing enough to support SME investment.
One of the other interesting trends to emerge from the study was the often significant variance in super-deduction uptake from one industry to the next. Specifically, the Business Leader report stated, some 74% of environment and agriculture-related SMEs had taken advantage of the scheme, yet a mere 40% of those in transport and logistics had done so. Among SMEs in the property and construction sector, meanwhile, the rate of participation was as low as 34%.
It seems that one of the reasons for the super-deduction scheme not achieving greater cut-through among the UK’s small firms was inadequate communications and guidance. Approximately a quarter (23%) of SMEs weren’t aware that a business of their size could take advantage of the super-deduction, while 17% of those surveyed didn’t know how to claim the tax relief.
However, there were also signs that communication was not the sole factor in the lack of uptake; on a backdrop of considerable economic turbulence, nearly a fifth (19%) of study participants said they couldn’t afford to invest even with the help of tax break incentives.
SMEs are showing optimism, despite the challenges – but could more be done?
Given the sometimes downbeat findings of the aforementioned poll, it is interesting to see the indicators in the Business Leader story that small and medium-sized businesses in the UK are actually still optimistic to some degree.
Although a mere 59% of the SMEs questioned made a significant business investment during 2022, 92% anticipated at least some investment being made in 2023. Indeed, an average of £314,000 was planned over the course of the year.
Nonetheless, the CBI has voiced concern about the competitiveness of the UK’s tax regime going forward, given that the super-deduction scheme is set to end as the Corporation Tax rate is planned to go up by six points. The business organisation has therefore called for a permanent investment deduction of 100%, which it has said could unleash £53 billion of additional investment a year by 2030/31, in addition to giving a 2% boost to GDP.
Our tax and accounting experts can be by your business’s side throughout 2023
Whatever your own thoughts on the situation may be as a business owner, very few observers doubt that the UK’s economic environment will continue to be an exceedingly challenging one for many firms in 2023.
To learn more about how our own expert accounting services in Newton Abbot, Plymouth, or Wellington could help make that environment a little easier for your firm to deal with over the coming months, please don’t hesitate to reach out to your nearest TS Partners office.