Elevate Your Business Efficiency with the Super Deduction Incentive

In a manufacturing plant, productivity is crucial; a processing business thrives or fails based on its output levels. While the most evident way productivity affects a business is through its profitability, there are less obvious impacts too. A manufacturing plant that is less productive than expected will fall behind on orders and delivery schedules, which means disappointing customers. Since On-Time In-Full (OTIF) delivery is essential for most businesses, and many Original Equipment Manufacturers (OEMs) enforce strict penalties for late deliveries, maintaining high output levels is vital.

Improved productivity also supports business growth. With higher throughput, you can handle more and larger orders within the same timeframe. This not only increases profitability but also helps your business grow and become more sustainable, laying the groundwork for future development. Let’s explore how the super deduction incentive can boost your productivity and, ultimately, your bottom line.

The government introduced the super deduction incentive to stimulate economic growth post-Covid. It’s touted as the most attractive tax incentive ever offered by a British government. Specifically targeting economic growth, this scheme allows businesses to invest more in machinery with generous capital allowances. Over the next two years, this will make British manufacturing more productive and increase corporate profits by 2023. While businesses will enjoy higher profits from their investments, corporation tax will surge from 19% to 25%.

Under the super deduction scheme, businesses can claim back up to 25 pence for every pound invested in plant and machinery between April 1, 2021, and March 31, 2023. Any capital investment in machinery during this period qualifies for a 130% capital allowance deduction. For instance, a £100,000 investment in machinery before April 2021 would save £19,000 in corporation tax, but investing the same amount during the incentive period would save £24,700. That’s an additional saving of £5,700.

Efficiency gains can also be achieved by ensuring you have the right equipment. Take air compressors, for example. Many businesses use the wrong size compressor for their power output. Companies typically buy a compressor based on current equipment needs, but as the business grows and power usage increases, the same compressor remains in place. It works but doesn’t optimize productivity, slowing potential production rates.

Conversely, if we reduce our power usage but continue using an oversized compressor, we waste money on energy costs. The initial purchase price of new machinery is just a fraction of the total lifecycle cost, with energy usage being the primary expense. A well-designed air system can save thousands of pounds annually on electricity or boost productivity if undersized compressors are the issue.

By ensuring your plant’s equipment is appropriately sized, you can maximize productivity, leading to satisfied customers and higher profits. Newer equipment tends to be more energy-efficient and often focuses on sustainability and energy savings. Additionally, modern equipment leverages Industry 4.0 and IoT connectivity, providing better control and smarter usage for optimal performance. For example, a Sigma Air Manager system can use algorithms to monitor and control every component within an air supply system, achieving maximum efficiencies and cost benefits.

The government’s plant and machinery capital allowance scheme is designed for businesses across the UK, including manufacturing and processing plants. It covers almost any capital equipment you can think of, such as transportation vehicles, forklift trucks, air compressor systems, refrigeration units, computers, servers, foundry equipment, desks, and chairs.

Investing in the right technology and capital equipment will always enhance your business’s productivity and profitability. By taking advantage of the government’s machinery capital allowances and the 130% capital allowance deduction on corporation tax, you not only save money that can be reinvested to further improve productivity but also enhance your cash flow and increase your business’s chances of growth and success.