UK taxi industry has been majorly focusing on this month budget delivered to workers by the Chancellor Rishi Sunak for several key reasons.
Along with the latest Self-Employment Income Support Scheme (SEISS) for the taxi industry, there was also the new tax break which got tongues wagging in the trade, which is called as the “Super Deductions”.
Some insight about the Budget
During the budget that took place on 3rd March, the Chancellor announced that from April 1 2021 until 31 March 2023, companies manufacturing taxis and investing in qualifying new plant and machinery assets will be able to claim:
- 130% super-deduction capital allowance on qualifying plant and machinery investments
- 50% first-year allowance for qualifying special rate assets
This super-deduction will help taxi manufacturing companies to cut their tax bill by 25p for every £1 they invest. This is to ensure UK capital allowances regime is quite competitive.
The main aim of this super-deduction is to encourage firms to invest in the enhancement of plant and machinery assets that will help to grow and make the investment.
Jason Short, accountant from Short and Sons Ltd said, “The ‘Super Deductions’ has been announced in the 2021 budget to encourage spending on new Plant and Machinery. This only applies to items bought after 1 April 2021.
Short and Sons have had a number of people ask whether this will help London Black Cab drivers as a London Cab is classified as Plant and Machinery. The problem with the Super Deductions is that it is only claimable for Limited companies and nearly all drivers are self-employed”.
“Even if you run your business through an Ltd company or you are a fleet owner, the Super Deduction only allows you to claim 130% of the value of the vehicle in the 1st year of ownership, which would mean a £78,000, writes off on a £60,000 cab. If you are lucky enough to have a profit of £78,000 it is an opportunity to be taken advantage of, however, this will remain for the very few”.
“Further to this, a strategy most Accountants use for cab drivers is to use enough depreciation to bring the tax down and not to leave the cab significantly undervalued if it were to be sold.”
Short further explain some of the pitfalls of investing on Annual Investment Allowance (AIA). He said, “For example, if you earn £45,000 after expenses and you bought a cab for £50,000 which qualifies for AIA, it is possible to write off £32,500. This would leave a taxable profit of £12,500, and match the 0% personal allowance leaving the driver with around £450 to pay in national insurance. The problem with this is when the driver wishes to sell the cab later for £40,000. At this point in time, the cab is only worth £17,500 (£50k – £32.5k) in the accounts, and there is tax to pay on that accounting profit – in this example £22,500 of it (£40k – £17.5k).”