UK Government’s Super-Deduction Scheme
Learn about the UK governments super tax deduction scheme and how it applies to a Fibo Collect investment.
The UK Government’s Super-Deduction Scheme
Introducing the UK government super-deduction scheme
On Wednesday 3rd March 2021 the UK government confirmed that from 1st April 2021 a new initiative called the super-deduction would be introduced. The scheme is scheduled to last until 31st March 2023.
The aim of the scheme is to promote an investment-led recovery as the UK emerges from lockdown, this has a huge impact on UK construction companies who are looking to make significant investments into new plant and machinery. This article will help construction entrepreneurs understand the basics of the super-deduction scheme and what it means for those thinking of investing in a Fibo Collect plant. All this in less time than it takes to drink a cup of coffee.
What is the UK governments super-deduction
Under the old rules, a company investing into plant and machinery would be able to claim back ‘’capital allowances’’ against 100% of the cost of a new machine & up to a maximum annual investment allowance of £1million. In addition, that same company could claim a ‘’writing down allowance’’ of 18% of the cost of the equipment which can be used to offset corporation tax, for anything over £1million.
Under the new rules from 1st April 2021 until 31st March 2023 a company can claim a full 130% of the cost as a first-year relief.
Practical examples of the super-deduction in action
Example 1 :
Builders ‘R’ Us UK Ltd is a local builders merchant, they choose to invest £210,000 into purchasing a new Fibo Collect fully automated, self-service batching plant so they can sell collectable concrete, mortar and screed to their existing customers.
Old Rules before 1st April 2021
This investment would form part of the company’s annual investment allowance, so they would get £210,000 full relief to offset against taxable profits:
£210,000 x 19%
Tax Saving = £39,900
New Rules from 1st April 2021
Under the new scheme the company would be able to claim £210,000 x 130% = £273,000 in Year One.
£273,000 x 19%
Tax Saving = £51,870
£11,970 more than before
Example 2 :
Builders ‘R’ Us UK Ltd invests £1.2million into purchasing six Fibo Collect fully automated, self-service batching plant so they can expand the concept across all their sites in the UK.
Old Rules before 1st April 2021
£1million would go to the Annual Investment Allowance
£200,000 would be subject to a Writing Down Allowance of 18% = £36,000
£1,036,000 x 19%
Tax Saving = £196,840
New Rules from 1st April 2021
The full £1.2 million would be eligible for the super-deduction of 130% = £1,560,000
£1,560,000 x 19%
Tax Saving = £296,400
£99,560 more than before
Do Fibo concrete batching plants qualify for the super-deduction?
In short, the answer is Yes. Assets that qualify are defined as plant and machinery that would have normally qualified in the main pool such as plant, machinery, tooling equipment, tractors and so on. However we would always encourage clients to seek independent advice from a UK based financial planner or accountancy firm.
- To learn more about the technicalities related to Capital Allowances see see this Gov Article
- To download the governments fact sheet on the super-deduction scheme click here
Importantly, the deduction will only apply to new and unused plant. All Fibo Batching plants are manufactured and shipped from the factory in Denmark. Fibo is renowned for its ability to create plants with real staying power and low maintenance costs over a lifespan – just a reflection of good Danish quality.
In most cases the total savings made on the scheme can cover the entire cost of loan interest with cash left in the bank to go towards future maintenance costs and software upgrades.
What does this mean for companies who invest in a Fibo Collect self-service batching plant?
Cash flow is more critical today with the new challenges we have in growing construction businesses. Qualifying UK companies can use the new super-deduction along with a secure business finance loan to create a profitable business case that generates a faster return on investment.
Companies who qualify for finance generally opt for a 5-year repayment plan : An initial 20% down payment is made then the rest of the payments are broken down over a 5-year period with a single payment being made each month. This provides a great opportunity for companies making larger investments to spread the costs whilst generating year-on-year profit.
Now let’s consider how this would be for a Fibo collect customer who combines the government’s super-deduction savings with a secure business loan in order to acquire the asset. Companies who do this will ultimately use the total savings made on the scheme to cover the entire cost of interest with cash left in the bank to cover all future maintenance costs and software upgrades.
Fibo Collect business case
The best way to understand the new UK Government Super Tax Deduction scheme is by looking at a Fibo Collect business case example.
Builders ‘R’ Us UK Ltd invest £220,000 into a Fibo Collect: a fully automated, self-service batching plant. The company takes out a secure business loan over a 5-year repayment period.
Business case example: Key trading numbers from year 1
|Volume sold on average per day in m3||8|
|Number of sales days per week||5.5|
|Number of selling weeks per year||50|
|Total production cost per m3||£100|
|Sales price of finished concrete per m3||£170|
|Total margin per M3||£70|
|Total margin over the year||£152,946|
Business case example: Cost of finance and total tax saving in year 1
|Asset purchase (based on £220,000 + £29,100 @ 5% interest rate)||£249,100|
|Initial down payment (based on 20%)||£44,000|
|Total loan amount||£176,000|
|Tax saving from super-deduction||£54,340|
|Cost of the plant over initial 12 months (without tax saving)||£85,020|
|Cost of the plant over initial 12 months (with tax saving)||£30,680|
Business case example: Year 1 summary
In the example provided above the company are able to achieve the following in year 1 from a single Fibo Collect machine :
- Total revenue generation of £374,000
- Total margin of £152,946
- Total net profit of £122,266
- Estimated pay back period of 1.6 years
- Calculations have not been verified by a third party and are for illustrative purposes only.
- Calculations are carried out by Fibo Intercon A/S based on open data sources.
- All data is confidential and provided without any responsibility or liability.
- The calculations are based on initial figures provided by a local UK-based client in relation to price and production.
Learn more about Fibo Collect
Grow your business with a self-service concrete plant.
- Give contractors and individuals in your community the opportunity to buy competitively priced, quality concrete, without creating waste and spill.
- Use an automated system requiring a limited workforce to create a profitable business for both yourself and your customers.
- Enable your customers to collect concrete when they need it for their projects 24/7.