Super Deduction Tax Relief: The Rules on Disposals
As you might be aware, the generous 130% Super Deduction tax relief available on new qualifying assets came to an end on 31 March 2023. However, many people are unaware of the specific rules in place for when you sell those assets.
There are 3 key factors to bear in mind if you sell an asset that has had super deduction tax relief on acquisition:
Does your accounting period end on 31 March 2023?
Does your accounting period start on 1 April 2023?
Does your accounting period include 1 April 2023?
Super deduction assets sold where your accounting period ends before 31 March 2023
If you purchased a qualifying asset and had 130% super deduction relief, and the asset was sold where your accounting period ends on or before 31 March 2023, you will be deemed to have sold this asset at 130% e.g. asset sold for £1,000, the deemed value would be £1,300.
Super deduction assets sold where your accounting period starts after 1 April 2023
If you purchased a qualifying asset and had 130% super deduction relief, and the asset was sold where your accounting period starts on or after 1 April 2023, you will be deemed to have sold this at 100% e.g. asset sold for £1,000, the deemed value would be £1,000.
Super deduction assets sold where your accounting period includes 1 April 2023
This is where it starts getting a little more complicated. If you purchased a qualifying asset and had 130% super deduction relief, and the asset was sold where your accounting period includes 1 April 2023 (e.g your year-end is 30 September 2023), you will need to consider the “relevant factor”.
The relevant factor is a sliding scale where a deemed value of sale of the asset will be multiplied by the proportion of your year-end that is after 31 March 2023 and before 31 March 2023.
If we can deduce that 130% is a relevant factor of 1.3 and 100% is a relevant factor of 1.0, we can calculate this relevant factor for accounting periods that include 1 April 2023. To do this, HMRC have published the following steps:
Count the number of days in the accounting period before 1 April 2023.
Divide that number by the total number of days in the accounting period.
Multiply the result by 0.3.
Add 1 to the result.
Example:
Iceman Ltd has an accounting period ending 31 December.
On 15 June 2021, Iceman Ltd incurs expenditure of £20,000 for a new van and claims 130% super-deduction of £26,000 for the accounting period ending 31 December 2021.
On 1 December 2023, Iceman Ltd sells the van for £10,000.
The accounting period when they disposed of the asset includes 1 April 2023, so this result needs to be multiplied by the relevant factor.
The number of days in the accounting period before 1 April 2023 is 90. The total number of days in the period is 365.
To work out relevant factor, they first divide 90 by 365. Then they multiply the result by 0.3 and add 1.
They multiply this result by £10,000, which gives them a balancing charge of £10,739.
N.B.
It is important to note that the above rules do not apply if you have scrapped the asset at £nil value.
What if i have purchased a qualifying super deduction assets where the accounting period includes 1 April 2023?
The above may sound familiar as there are similar rules for when you acquire a qualifying asset for super deduction where company year-end includes 1 April 2023. In this instance, the super deduction available for the company reduces on a sliding scale.
There is one major difference here in that you will still need to have bought the asset on or before 31 March 2023 in order for the asset to qualify for super deduction.
N.B.
The super deduction was only for companies and not available to partnerships or sole traders. Furthermore, there were exclusions, for example, second-hand assets (it had to be new assets) or assets acquired under a contract entered into before 3 March 2021.
