UK Government’s Super Deduction Scheme

Learn how you can take advantage of the scheme

Finance your project 

The UK Government’s Super Deduction Scheme

What it means for the UK construction industry

 

On Wednesday 3rd March 2021 the ears of the UK Construction industry pricked up as chancellor Rishi Sunak announced in his budget statement. It was confirmed that from the beginning in April 2021 a new initiative called the ‘Super Deduction’ would be introduced. 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 busy Construction entrepreneurs  understand the Super Deduction and what it means for those thinking of investing into a concrete business, all in less time than it takes to drink a cup of coffee. 

 

We will cover…

  • What is the Super Deduction?
  • Practical examples of the Super Deduction in action.
  • Do concrete batching plants qualify?
  • What does this mean for companies who invest in a Fibo batching plant?
  • Business Case Examples.

What is the Super Deduction 

 

Before we begin to look at the new let’s start by looking at the old… 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 can claim claim a full 130% of the cost as a first-year relief.

Practical examples of the Super Deduction in action

 

Example 1 : 

Let’s take a look at a made up company called Concrete On Tap UK Ltd (COT) who invests £210,000 into purchasing a new Fibo semi mobile concrete batching plant to grow the concrete to collect part of their business.

 

Old Rules before 1st April 2021

This investment would form part of COTs 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 COT 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 : 

COT invests £1.2million into purchasing a fleet of mobile concrete batching plants, this allows them to grow their business by servicing large customers with projects in remote locations.

 

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, Lorries, Vans and so on.

To learn more about the technicalities related to Capital Allowances see see this Gov Article.

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.

 

What does this mean for companies who invest in a Fibo Concrete batching?

There is one phrase we use to tackle this one “Cash Flow is KING long live the KING”.

Cash flow is more critical today with the new challenges we have growing construction businesses. This is why qualifying UK companies can use the new Super Deduction along with our Fibo Finance i to create a very profitable business case.

Firstly Fibo finance… 

Companies who qualify for Fibo finance can purchase a plant in two ways : 

 

  • 1 year finance option : Here no payment is required at all until 12 months from purchase date when the full balance is paid. This provides a great way for the plant to generate the cash to pay for itself before the business outlays one single penny.

 

  • 3 to 5 year finance option : An initial 15% down payment is made then the rest of the payments are broken down over either a 3 or 5 year period with a 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 could look when Fibo customers combine the Governments Super Deduction savings with our Fibo Finance offer .

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.

 

Business Case / Cash flow example

The best way to understand the new UK Government Super Tax Deduction scheme is by looking at some practical examples.

 

Example 1 – 12 month example

A company invests £220,000 on an FS1200 fibo batching plant along with additional concrete interlocking block making equipment. They qualify for 12 month Fibo Finance…

Asset Purchase : £225,049.85 (£220,000 + £5,049.85 @ 4.5% interest example) 

Repayment date of full amount is 1 year from date of initial purchase

Additional relief from super deduction = £55,587.31

Actual Cost of plant over 12 months  = £169,462.54

Year 1 net profit = £424,000 at only 50% output capacity.

The machine has already made a 3x return on investment before the payment is due. 

 

Example 2 – A 5 year example 

A company invests £220,000 on an FS1200 fibo batching plant along with additional concrete interlocking block making equipment.  They qualify for a 5 year Fibo Finance plan. 

Asset Purchase : £225,049.85 (£220,000 + £5,049.85 @ 4.5% interest example) 

Initial Down Payment (15%) = £33,757.48

Repayment Amount (Every 6 months) = £19,129.24

Additional Y1 relief from super deduction = £55,587.31

Actual Cost of plant over first 12 months =  £16,428

Year 1 net profit = £424,000 at only 50% output capacity.

The Machine makes a 25x Return on Investment in year 1 alone. 

Learn More by downloading this business case here : Concrete block laying machine

Real World Examples

Learn more about how you can use the super tax deduction scheme in a business plan. We’ve put together two free business case summaries to show you the potential costs and profits associated with investing now. The business plan includes examples of different methods of finance and the net profit you can achieve from the batching plant output.

Generate £424K+ net profit with Interlocking Block Moulds

Generate over £2M net profit with Block Making Plant

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