130% Tax Relief On New Asset Purchase
The Background
Our client’s business has been experiencing steady growth over the last 2 years, resulting in them taking on additional staff. Due to the nature of their business, all staff or provided with a van, so at this stage, 2 new vans were required.
The company currently had 2 other existing vans in their fleet, which were circa 4 years old that they also wanted to replace.
They were therefore looking to acquire 4 commercial vans, which had a combined value of £136,000.
Knowledge
As part of the governments Covid-19 recovery plan, additional tax benefits were given for businesses investing in qualifying plant and machinery, resulting in a 130% deduction being available rather than the normal 100%.
Timing was everything here, as we worked closely with our client to ensure that they acquired their assets at a point that provided them with the maximum amount of tax relief as possible.
By ensuring that the assets qualified for the super-deduction we generated the following tax savings for our client:-
Cost of 4 vans: £136,000
Normal tax saving before super-deduction: £25,840 (being 19% on £136,000)
Qualifying under super-deduction at 130% of £136,000 = £176,800
Corporation tax saving of 19% on £176,800 = £33,592.
By applying our knowledge and working with our client to ensure that optimum timing was achieved, we generated our client an additional tax saving of £7,752.
Additional Benefit
Our client had usually purchased their vans using dealer provided hire purchase/PCP agreements.
Due to the nature of these agreements, there are usually additional finance charges applied, as well as a higher rate of interest when compared to business loans that may be available.
By working with Mesa Financial, they were able to analyse various different financing options available for our client.
It turned out that they were able to secure a commercial loan, at a much lower interest rate than what the dealership were offering, saving substantial interest costs. There were also lower finance costs associated with the agreement, providing further savings over the duration of the agreement.
