Super allowances having little effect on UK economy, says tax expert

Too few SME businesses are taking advantage of super allowances for the incentives to have any positive effect on the wider UK economy, according to a leading tax expert.

Sophie, tax director with UK Top 10 firm Azets in the North West, describes the introduction of super capital allowances during the Spring Budget 2021 as an unexpected boost to companies, but there is a risk of the schemes having little impact unless more businesses start using them.

The super allowances available include the super deduction, a 130 per cent first-year allowance for expenditure on main pool qualifying assets such as machinery, furniture, fittings, computers etc, and the enhanced special rate, a 50 per cent first-year allowance for assets including integral features in buildings such as electrical, water and heating systems.

These are in addition to the existing Annual Investment Allowance (AIA) which permits 100 per cent relief for up to £1m of expenditure incurred each year on qualifying plant and machinery assets, until 31 March 2023.

According to the Office for National Statistics (ONS) the uptake rate of the super deduction scheme still remains unclear but “early evidence suggests super deduction claims are building more slowly than expected”.

Sophie Huddleston, tax director at Azets, said: “Business investment accounts for a significant part of GDP and is crucial to boosting long-term growth and productivity – weak spending undermines the recovery and risks more underwhelming growth in living standards, despite Government efforts to incentivise spending.

“The lack of uptake of super allowances is likely due to uncertainty, with the ever-present threat of stricter Covid measures and the economy being thrown back into lockdown leaving business owners reticent to spend too quickly, particularly with the ongoing spread of the Omicron variant.”

Sophie Huddleston is urging businesses to review their ability to invest now and use the incentives available to them whilst they still can.

She concluded: "Business owners should look carefully at the timing of planned investment in new assets to take full advantage of the enhanced allowances. Up to 31 March 2023, the additional tax savings through super allowances will be most beneficial to companies that have already absorbed the 100 per cent relief available through the AIA. Businesses should seek professional advice from specialist firms to maximise and accelerate the available tax incentives.”