In construction companies, productivity is paramount. Manufacturing companies live or die by the amount they produce. The most apparent impact of the 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 incentives 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, equipment and machinery contracts were entered into after the tax credit has 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 the super deduction incentive help improve productivity in the manufacturing sector?

In addition to streamlining processes, the right equipment you can install to achieve greater efficiency. For example, in the case of air compressors, many companies use compressors that don’t size 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 incentives are only available to businesses subject to the corporate income tax. They do not apply to unincorporated businesses. (See our website for business tax tips)
• There is no limit to the number of capital expenditures for which overpayments or super deduction incentives you may claim. 
• Reiterated (emphasis added!). The two new exemptions apply only to new and unused plants and machinery, not older assets.
• You can use Excluded assets for leasing purposes (so leased building fixtures. Equipment can, unfortunately, qualify for the “leasing” exemption, as can equipment purchased from a leasing company), and motor vehicles.

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. Moreover, they are improving how they can support new ways of working. Future work should be a place where employees enjoy going to work. 

The new super tax credit feature announced in the 2021 budget is good news for those considering office remodeling and renovations and increasing productivity. 

Author Bio

Tina J. Wagner Phillips is a 31-year-old. She enjoys Payroll Tax Liabilities, Accounting, working on payroll, and bookkeeping. The author has a degree in accounting, politics, and economics, obsessed with films and tank tops.