Super-deduction is still super!

How combining super-deduction with hire-purchase finance could create significant capital savings

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Can you believe that we’re already 15 months into the two-year super-deduction capital allowance scheme announced by the Chancellor in the 2021 March Budget?  Although some business bodies such as the CBI are asking for it to be made permanent, at this stage it’s still due to end on 31 March 2023. 

Recent reports say many larger companies immediately used the scheme to access the 130% capital allowance. Helping them bring forward their purchases of new assets and equipment for their business.  However, research findings from accountants in the ACCA/CFN SME Tracker report that smaller companies took more time to take advantage of the scheme.

It’s likely that for some this was partly due to some nervousness around funding significant cashflow expenditure, after they were stabilising their businesses again following the pandemic.

Paul Surtees, Capitalise CEO, explains the potential opportunity for combining super-deduction with hire-purchase finance to create significant capital savings: 

‘When we speak to asset finance lenders, they're seeing a lot of transactions linked to the super-deduction government support. However, whilst asset finance as a percentage of lending has grown, the accounting community are not yet linking the two opportunities together. Asset finance smooths cashflow, super deduction pays for (most of) it!’

‘Businesses need new assets and equipment to grow and to stabilise their recovery, but if they don’t have the free capital at present to purchase these assets, the hire purchase route makes a lot of sense.  The super-deduction relief covers some if not all the interest payments so businesses will see that hire purchase in combination with super-deduction will begin to pay for itself.’

‘This is an amazing capital giveaway and we hope accounting partners can continue to share during their client conversations how funding could support the ability to make use of this scheme.’

How does the super-deduction scheme work?

Under the usual capital allowances model based on writing down allowances, a £100k asset would attract a deduction of £8,524 over three years, with the capital allowance at 18%. With the way that super-deduction is designed, that relief is all sat in the first year and at 130%, giving you a £24,700 return on the asset that’s been purchased at £100k. That’s a difference of £16,176.

Loan profile, Tier 1:

  • four years 5% hire purchase from a Tier 1 lender (such as a high street bank)
  • interest on a £100k hire-purchase agreement over the period would be £10,299
  • the £24,700 relief from super-deduction will pay the interest on the loan twice over
  • effectively gives you your first finance costs for free.

In reality, you will probably get around 11 months of the first year of the hire purchase agreement capital and interest free, because of the capital allowance.

If you look at a Tier 2 lender, the interest is still covered.

Loan profile, Tier 2:

  • four years 10% hire purchase from a Tier 2 lender (such as a reputable online finance company)
  • interest over the period would be £20,749, which is easily covered by the £24,700 relief
  • by combining hire purchase with super-deduction, the result is that you have money left over…

What are the rules when using this scheme?

  • hire purchase not leasing
  • limited companies only
  • no refinancing.

The important thing to note is that you must use a hire purchase facility and try not to use leasing. Leasing just won’t work under super-deduction and would mean the client might miss out on the relief and all the benefits that go with this.

If you’d like to learn more about how you maximise this hire purchase plus super-deduction opportunity for your clients, get in touch with us today at