Brexit, Coronavirus, the war in Ukraine, rising energy costs, the Cost of Living Crisis, the drive to Net Zero, rising Corporation Tax rates, and now predictions of a return to inflation levels not seen for forty years: approaching a news broadcast with your eyes closed and your fingers in your ears can feel like the only way to protect your mental wellbeing.
Against such a background of uncertainty it’s completely understandable that capital investment in business assets could be taking a back seat.
But there are a number of reasons why now could be the time to go on a shopping spree.
Record high energy costs are helping to make the business case stronger for investment in newer and more energy-efficient machinery and plant, reducing running costs and shortening payback periods.
Remember also to factor in the temporary 130% Super-Deduction for main pool plant. This is due to expire at the end of March 2023, and there are complicated transitional rules around its withdrawal. But full use of the Super-Deduction can mean that a machine with an upfront cost of £100,000 could have a post-tax cost could of as little as £75,300.
If you delay investment until after the Super Deduction has been withdrawn, the tax incentive to invest is much less favourable. Don’t forget, the Annual Investment Allowance is scheduled to fall back to £200,000, also from 1 April 2023. And if this allowance has already been used elsewhere, it could mean tax relief of only 18% or even 8% per year.
This means that tax relief would be spread over many years, and its value further eroded by inflation – a recent study by the Tax Foundation found that of the 38 OPEC countries, only Mexico has a tax regime that adjusts capital allowances for the effects of inflation.
With high energy costs, inflation forecast to rise to the highest level in 40 years, a temporary 130% Super-Deduction for P&M, and the imminent cliff-edge of the AIA drop to £200,000, now could be the ideal time to invest in energy-efficient plant and machinery.
