In construction companies, productivity is paramount. Manufacturing companies live or die by the amount they produce. The most apparent impact of productivity on businesses is that efficiency increases profitability. However, there are less obvious consequences. Manufacturing companies with lower-than-expected productivity inevitably fail to meet orders and delivery schedules and disappoint their customers. Plant productivity is critical, as OTIF is a crucial metric for many companies, and many OEMs impose heavy penalties for late delivery. Improving productivity also impacts business growth. With improved performance, you can handle larger orders and process them in the same amount of time. This increases profitability and grows and expands the business, paving the way for more sustainable next steps.
Can Your Business Benefit from a Super Deduction Incentive?
Super deduction incentive can only be claimed by businesses that pay corporate income tax. This means that individuals, partnerships, and limited companies are unfortunately not eligible. In addition, for equipment and machinery contracts entered into after the tax credit was announced on March 3, 2021, the super-reduction only applies to payments made on or after April 1 of that year.
In general, the exemption applies to goods purchased in full. However, machinery and equipment paid for through asset finance or hire purchase may qualify for the super credit if “additional conditions” are met. In principle, if your company is the eventual legal owner of the asset, you should be able to take the super value deduction.
Notes on equipment leasing make sure you are aware of the anti-avoidance rules that apply to related party agreements and used purchases. Also, note that if you let go of property for which you claimed a super credit before April 1, 2023, you will have to repay the tax saved.
How Will Super Deduction Incentive Help Improve Productivity in the Manufacturing Sector?
In addition to streamlining processes, the right equipment can be installed to achieve greater efficiency. For example, in the case of air compressors, many companies use compressors that are not sized for their capacity. Often, companies purchase compressors that meet their needs based on the current capacity utilization of the equipment. However, even if the company expands and adds additional tools or increases the capacity of existing tools, the same compressor is still used. The work gets done, but the potential productivity is reduced because the plant is not operating as well as it could.
Otherwise, you are wasting energy if you reduce consumption but continue to use the same, now more prominent, compressor. The initial purchase price of new equipment is only a tiny part of the total life cycle cost; the real driver of the total cost of ownership is energy consumption. A properly designed compressed air system can save thousands of pounds a year in energy costs and increase efficiency where undersized compressors are a problem.
This is an opportunity to check the performance of the equipment used in your facility to ensure optimal performance, which translates into customer satisfaction and increased profitability. New equipment is more energy-efficient, uses the latest technology, and is often more durable and therefore more environmentally friendly. The new equipment also uses Industry 4.0 and the Internet of Things to enable more significant optimization with better control and more thoughtful use of equipment. In the air compressor example above, the Sigma Air Manager uses algorithms to monitor and control all elements of the air supply system to maximize efficiency and therefore reduce costs.
Factors to Consider
We find several essential aspects to consider
- Special and super deduction incentive are only available to businesses subject to corporate income tax. They do not apply to unincorporated businesses. (See our website for business tax tips).
- Sorry to repeat (emphasis added), but these new reliefs can only be claimed for expenses on contracts entered into between April 1, 2021 (more than a month later) and March 31, 2023 (the AIA expired on December 31, 2021).
- There is no limit to the number of capital expenditures for which overpayments or super deduction incentive may be claimed.
- Reiterated (emphasis added!). The two new exemptions apply only to new and unused plant and machinery, not older assets.
- Excluded are assets used for leasing purposes (so leased building fixtures and equipment can, unfortunately, qualify for the “leasing” exemption, as can equipment purchased from a leasing company), and motor vehicles (which have their own tax rates and capital gains rules).
These excess deductions significantly increase the total amount of deductions a taxpayer can claim, which reduces income taxes and may even result in losses during the period.
Conclusion
With the removal of regulations, many companies are reexamining their office spaces and improving how they can support new ways of working. The future work should be a place where employees enjoy going to work.
