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Chancellor’s ‘super-deduction’ tax break to boost car dealership investment

Peter Graham, RSM’s head of capital allowances

Costly corporate identity upgrades and showroom developments should be pulled forward to take advantage of Rishi Sunak’s ‘super-deduction’ tax relief offer, according to RSM.

Peter Graham, RSM’s head of capital allowances, has told AM that the Chancellor of the Exchequer’s Budget 2021 measure, designed to boost investment and economic growth in the wake of the COVID-19 crisis, has handed dealers “a real opportunity to make long-term strategic investment”.

The ‘super-deduction’ will allow dealers to claim tax relief of up to 130% on new main pool plant and machinery between April 1, 2021, and March 31 2023, meaning that any investment to upgrade existing showrooms and systems; or investment in new showrooms will all qualify for the generous incentive.

Graham said: “When you compare this to the current 18% reducing balance writing down allowance for main pool expenditure that is not covered by the annual investment allowance (AIA); it is a welcome measure to encourage capital expenditure for dealerships.

“In addition, for investments in new assets that qualify for the special rate pool, such as electrical , air-conditioning and lighting systems in a showroom, a temporary first year allowance of 50 per cent will be available over the same period – which compares to the current rate of 6 per cent annum reducing balance.”

Despite the impact of the COVID-19 pandemic on motor retail, and ongoing support from OEMs, plans are still being made for CI upgrades to dealership facilities, such as those outlined by Stellantis brand Peugeot UK last month.

Other brands - along with a list which includes Volkswagen, BMW and Vauxhall - may also be set for CI changes as a result of new 2D logo launches.

Graham said that businesses with planned capital expenditure over the next two years would likely benefit from an acceleration in the tax relief available.

He told AM that expenditure which involves building works will likely attract relief at differing rates – so urged retailers to ensure their expenditure was correctly allocated to ensure the most advantageous outcome.

However, provisions have been included within the draft legislation to prevent relief being given on contracts already entered into, he added.

“Overall, when you combine this favourable tax environment with current financial conditions it presents a real opportunity for dealers to make long-term strategic investment to enhance customer experience and maximise growth potential,” Graham said.

“When you consider low interest rates and adjust for inflation, the cost of new debt may well be negative over the lifetime of the debt; so now is the time to act.

“Pull forward investments in technology, property, or acquisition, to bolster long-term prospects and maximise the silver lining that the new tax incentives and financial conditions provide.”

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