Super Deduction post 1 April

Losing out on Super Deduction with a split year

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Don't know if I am thinking about this too much but does it make sense to shorten the financial year of a company that has purchased say £1,000,000 worth of new and unused assets pre 31 March 2023 but has a 31 May 2023 year end currently. If the year were to stay at 31 May 2023 they would only be entitle to claim 124.99% but if the year was shortened the company would be able to claim the full 130%.

The £1,000,000 asset purchase has taken them into a taxable loss position but is predicted to make high profits in the 31 May 2024 year so the savings on shortening the financial year would be 300,000-249,900 @ 25% = £12,525.

Any comments would be appreciated

 

Replies (5)

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By IWantToLearn
24th Nov 2023 10:15

I agree with everything you've said. For the numbers involved assuming the client is happy I would amend the year end too.

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By Capitalised
24th Nov 2023 12:29

Read section 14 Finance Act 2021 partly replicated below

"Counteraction where arrangements are contrived etc
(1)Any relevant tax advantage that would (in the absence of this section) be obtained as a result of relevant arrangements is to be counteracted by the making of such adjustments as are just and reasonable.
(2)A tax advantage is “relevant” if that advantage is connected with a super-deduction or an SR allowance (for example, the obtaining of such a first-year allowance or the avoidance of a balancing charge under section 12 or 13).
(3)Arrangements are “relevant” if—
(a)the purpose, or one of the main purposes, of the arrangements is to obtain a relevant tax advantage, and
(b)it is reasonable, taking account of all the relevant circumstances—
(i)to conclude that the arrangements are, or include steps that are, contrived, abnormal or lacking a genuine commercial purpose, or
(ii)to regard the arrangements as circumventing the intended limits of relief under CAA 2001 or otherwise exploiting shortcomings in that Act....."

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Replying to Capitalised:
By plummy1
29th Nov 2023 16:53

Capitalised wrote:

Read section 14 Finance Act 2021 partly replicated below

"Counteraction where arrangements are contrived etc
(1)Any relevant tax advantage that would (in the absence of this section) be obtained as a result of relevant arrangements is to be counteracted by the making of such adjustments as are just and reasonable.
(2)A tax advantage is “relevant” if that advantage is connected with a super-deduction or an SR allowance (for example, the obtaining of such a first-year allowance or the avoidance of a balancing charge under section 12 or 13).
(3)Arrangements are “relevant” if—
(a)the purpose, or one of the main purposes, of the arrangements is to obtain a relevant tax advantage, and
(b)it is reasonable, taking account of all the relevant circumstances—
(i)to conclude that the arrangements are, or include steps that are, contrived, abnormal or lacking a genuine commercial purpose, or
(ii)to regard the arrangements as circumventing the intended limits of relief under CAA 2001 or otherwise exploiting shortcomings in that Act....."

From the above I would say that unless you have a valid reason to shorten the tax year other than creating a tax advantage from the SR you should not do it. I think HMRC we be looking out for this given you are not going to be the only one looking for a tax advantage for their client.

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Replying to plummy1:
By Ruddles
29th Nov 2023 19:29

I disagree

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By thevaliant
27th Nov 2023 12:43

We have a client that has a September year end.
We proposed just this (shorten to March) when they announced a £3m capital project, all to be completed by March 2023.

115% was obviously a lot worse than 130%, so we advised them to change the year end.
In the end, the spend was delayed (still delayed now) so no need.

Had it happened, then yes, shortening the year end was certainly going to be done.

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