TAX INCENTIVES SUPER-DEDUCTION TAX RELIEF EXPLAINED


Malcolm Little, managing director at Advanced Dynamics, says this headline- grabbing incentive needs to be viewed with perspective


I


magine this. You’re sat on the edge of a plane ready and prepped to do a skydive. You get up to 10,000ft in the air. You’ve come


to jump and have been mentally psyching yourself to do so. But you can’t. Not straight away. You need encouragement from a friendly and trusted expert, before you edge closer and, finally, take that leap. That would be the case for most of us anyway. Strip that back and what you’re


reading right now is actually an analogy and a comparison of what this newly introduced super-deduction tax relief is to manufacturing firms up and down the UK. Announced by Chancellor Rishi


Sunak in the March budget, the tax relief is just like that friendly skydiving expert giving us the encouragement to jump. Instead though, it’s a helping hand from the


Government to manufacturing businesses that are clambering back to their feet again after a difficult 12 months. It’s an added incentive to grow and invest and get more money back in the process. As good as this new super-deduction


sounds, though, it’s important to heed caution. Yes, it’s a great incentive, especially if you’re


a manufacturing firm that had growth plans already in place. Go and fill your boots. There hasn’t been a better time to do so. If not, however, I’d urge strongly against this being the defining factor and driving force behind your business decision-making. As a headline grabber, it’s eye-


catching, but let’s put the new Super Deduction tax relief into perspective. In its simplest form, as of 1 April,


manufacturers are now able to offset their expenditure towards new qualifying plant and machinery asset purchases by 130% for the next two years - until 31 March 2023 - this applies to any business that is spending capital, up to the tune of £1 million. In terms of the size of the business, there is


no limit, although the guidance stipulates that a business must be paying corporation tax to apply for this super-deduction. Given it spans over two years, it also eliminates rushing and making uninformed, knee-jerk, decisions. Having analysed this, the super-deduction


Little warns not to look at this tax-relief and use it as the single biggest reason for investing. It’s only a marginal gain, one that you won’t see the benefits of for quite some time. But, if your intention was to grow, there hasn’t been a better time to do it


tax relief is a great boost for businesses that were planning on spending that money anyway, but it’s not a huge change - certainly not as huge as what some business owners out there may be thinking. The truth is it’s not going to make or break projects. Essentially, if you’re spending £100,000 on


a project, you’re saving yourself £5,700. If you’re spending £1,000, you’re saving £57. That’s the reality. It’s those that spend £1


million on projects - at which point you’re saving £57,000 - that’s when you will see a big difference. Broadly speaking, the tax benefit equates to


5.7% above normal rates. That’s not enough incentive to really push businesses to get back on their feet. As an initiative for businesses to reduce


their tax bill, it’s a nice option to have. But if I was a business owner that was split on whether to invest in new machinery, I wouldn’t be swayed by it. It’s an incentive, but don’t let it be your business decision-maker Within our industry, there’s never been


anything like this. The biggest change we have seen is the limit you can claim against increasing from £250,000 to £1 million. But there has never been an initiative where the government was allowing businesses to claim more of the cost of the unit against tax. Ultimately, you’ve got to be in a position to spend in order to get anything back. It’s


important to remember, as well, that businesses aren’t going to see a penny of the saving they’ve made through the super- deduction tax relief until January 2023, when they pay their tax bill. I’m not going to talk this scheme down. It’s a


positive for our industry, but any decisions taken have to be done so with the broad perspective of whether you already had the intention to grow the business. All this tax relief will do is give some business owners the final push they needed to take the


plunge and invest. It is a benefit, without a doubt, but it isn’t transformative. Speaking for the wider industry, looking at


VAT would have been a big thing and would have had a significant impact. This, however, would have cost the Government millions, whereas that’s not the case with the super- deduction tax relief. In the grand scheme of things, the


Government has incurred a huge outlay during this pandemic. As a nation, we don’t have a bottomless pit of money and a lot is still being attributed to the furlough scheme and keeping as many businesses operational and as many people in work as possible. There has to be a balanced view and


this super-deduction tax relief is, probably, the fairest solution our industry could have asked for at this time. And so, after such a difficult period over the last 12 months, this new super-


deduction tax relief is a welcome incentive and will help many manufacturers climb back to their feet and grow again. But business owners need to remember there always has to be a sound business case behind pursuing growth. If you’re an owner that had already decided


that you want to invest in something for your factory, like a mixer or a capping and filling machine, dive in. There hasn’t been a better time to do it. If not, though, do not let this new incentive sway you. Ultimately, it isn’t worth it. Returning to that analogy I used at the


beginning, if you’re up in that plane ready to do your skydive and just need that extra bit of encouragement to take that final leap, listen to that skydiving expert. However, if you’re up there and think, actually this isn’t for me, ignore the gentle encouragement and get your feet firmly back on safe ground until you feel ready to try again at some point.


Advanced Dynamics www.advanceddynamics.co.uk


MAY 2021 | PROCESS & CONTROL 45


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66