The chancellor has made it clear he plans to turn around the UK economy with strong incentives to get businesses investing in the future.
Part of the budget, announced yesterday, was a ‘super deduction’ that is expected to get car dealers investing and renovating in their dealerships.
In some cases, according to ASE Global, this could make tired and poorly performing dealers more appealing to potential buyers.
In the past, capital allowances and enhanced capital allowances were an attractive way for a car dealer to benefit from buying or upgrading premises.
This new policy will allow deductions of 130 per cent on the first year allowance to all qualifying expenditure between April 1, 2021, and April 1, 2021.
This is on items that would normally qualify for 18 per cent main rate writing down allowances.
There is also a 50 per cent first year allowance on new plant and machinery investments, which normally qualify for a six per cent special rate writing down allowance.
Head of professional services at ASE Global Chris Cummings explained: ‘The tax deduction is for the usual items a dealership buys, which are subject to capital allowances.
‘They may therefore buy a dealership fully anticipating that renovation or improvement will be required and as such, at 130 per cent of the cost of upgrade, be mindful to buy when previously the cost would be allowable over a long period of time with little real cash flow benefit.
‘Equally, a dealer may choose to knock down an existing site and rebuild, or sell a site and move or build taking advantage of the expenditure deduction.
‘A typical cost of £2,000,000 to build may involve £600,000 of qualifying expenditure which under ‘super deduction’ creates an immediate tax deduction of £780,000 and a tax reduction of almost £150,000 in real cash flow terms as opposed to a write of the expenditure of many years in future.
He added: ‘A seller with an attractive and perhaps tired site and perhaps a poorly performing business may look more attractive to a buyer and allow the seller to exits accordingly.’
There are some things not included in these super deductions, and ASE explained used and second-hand assets don’t qualify, as well as expenditure on contracts entered into on contracts before March 3, 2021, cars, connected party transactions or provision of plant and machinery for leasing.
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