Why UK Businesses Should Invest in New Machinery and Plant Equipment Now

The post Why UK Businesses Should Invest in New Machinery and Plant Equipment Now appeared first on POWER Magazine.

After more than 12 months of unprecedented working conditions and extremely tough challenges for power companies, the most sensible route for businesses in the coming year seems, on the face of it, to be to consolidate and let things settle whilst the economy stabilises. However, economic predictions for the next year tell us that savvy companies will be picking up the pace sooner rather than later. Leading experts and economists are all saying the same thing; we will continue on the current trajectory until the final quarter of 2021 and the first quarter of 2022, when we will not only see things back to the point that they were pre-COVID, but we can expect continuing growth from thereon out.

Some consumers have really struggled during this pandemic, but others have demonstrably saved money and are looking for ways to spend it. Whether that's on holidays, new cars, a better lifestyle, or home improvements-whatever the outlet for the cash surplus, there will be a welcome knock-on effect in the economy. How does that relate to plant and machinery investments? We explore in more detail below how you can capitalise on the forthcoming upturn in demand.

UK Government Investment

The government wants UK manufacturers to be in the best position to capitalise on the forecast increase in work, and business leaders have really been pushing the chancellor to facilitate this through an improved capital gains allowance. It has been demonstrated in the past how much difference such investments can make in ensuring that processing plants are in the right place to ramp up output, so the government has put in place just the opportunity for manufacturers to invest through their 2021 budget. The chosen strategy is the super deduction tax; a marked improvement on the traditional capital gains allowance. The basis of the government scheme is an allowance for purchases that can be written off against taxable income. The super" part of super deductions refers to the huge improvement on the current capital gains allowance.

Business groups have welcomed the super deduction policy, saying that it would encourage firms who could afford to do so to spend their money now, aiding the UK's recovery. Melissa Geiger, KPMG UK's head of tax policy, said: The super deduction will be welcomed by businesses, particularly those outside of London in the manufacturing sector. In the short-term, the Chancellor will hope this initiative will provide businesses with the confidence to invest any cash now rather than waiting."

Why You Should Allow for a Plant and Machinery Capital Allowance in Your 2021 Budget

The new super deduction tax is available to businesses on expenditure incurred between April 1, 2021, and the end of March 2023. So, why invest now? If the economy is set to improve and demand on manufacturing subsequently due to increase, we as an industry need to ensure that we are best positioned to answer that demand and reap the benefits through improved productivity, and therefore, profitability. Added to that is the fact that the capital allowance will improve cash flow for the following year, enabling you to further invest in any plant and equipment that you might need as your business grows. The advantages become greater if you can use the scheme year on year as you reinvest further in your business.

What Does the Super Deduction Really Mean for Machinery and Plant Purchases?

Plant and machinery, in this context, covers a whole raft of tangible capital assets that might be used within a business. These include, for example:

• Commercial transportation such as vans and trucks
• Forklifts
• Air compressor units
• Cranes
• Refrigeration units
• Dryers
• Computer equipment

The key to ensuring that you can capitalise on the super deduction tax is in making an outright purchase, because the leasing of equipment is not included as part of the scheme.

What Do the Numbers Look Like?

The basis of the super tax deduction is that 130% of any spend on capital equipment can be claimed back off of the business' corporation tax bill through the capital gains allowance. Capital investments are already deductible from business profits before corporation tax is calculated. This means that if a machine costs 10,000 to buy, at the end of a usual business year the rate of corporation tax (currently 19%) is payable on any profits less the investment value, which gives you 19% x 10,000 = 1,900 extra on the bottom line. With the super tax deduction scheme in place, the claimable amount is 19% of (10,000 x 130%), which gives you back 2,470, an increase in this example of 570 on top of the usual capital gains allowance. In real terms, any capital expenditure will result in a tax cut of up to 25p per pound spent.

Make Hay

The old phrase make hay while the sun shines" exists for good reason. Corporation taxes are set to rise from 19% to 25% from April 2023 as the super tax deduction scheme comes to an end. So, those firms that have not yet made capital investments will be in an even more challenging position at that time. Not only will the super deduction scheme no longer be in place, and so any potential savings will have been missed, but the outgoings in accordance with any profit made will also increase; a double whammy, making investments harder to justify and cash flow positions poorer.

In spite of the tough times that some manufacturers have seen during the pandemic, there is no better time to invest than now-and the more plant and machinery capital allowance that can be taken advantage of during this period, the better. The recommendation? Start with key items central to your business' productivity and efficiencies-servers for computational speed or key manufacturing equipment that needs upgrading or could be improved.

Think of this as the chance for an air compressor super deduction, for example, to push your operational output to the top of its game. To learn more about which equipment could take your facility to the next level, and better understand the potential gains of a specific piece of equipment, such as an air compressor, Glaston has online tools such as energy calculators that can help you with the decision process.

-Michael Douglas is managing director of Glaston Compressor Services.

The post Why UK Businesses Should Invest in New Machinery and Plant Equipment Now appeared first on POWER Magazine.