Focus: How government’s latest tax relief can benefit SME manufacturers

This month, the UK government introduces its super-deduction tax relief. It’s a new incentive to try and get manufacturing businesses of all shapes and sizes back on to their feet, but is it really worth pursuing? After analysing it, Malcolm Little, the managing director at Advanced Dynamics, a UK leader in filling and capping machinery, believes it’s worth investigating if you have pre-existing growth plans

Imagine 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 your companion, your 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.

See, this new super-deduction tax relief, announced by Chancellor Rishi Sunak as part of the latest Budget last month, is just like that friendly skydiving expert giving us the encouragement we need to jump from that plane.

Instead of someone in skydiving gear, 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 – money that can be contributed to other areas of the company, like wages or training.

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

Let’s lay this super-deduction tax relief out 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 – and 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 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 when they saw the announcement. 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. As a headline-grabber, it’s eye-catching. But if I was a business owner that was split on whether to invest in new machinery, I wouldn’t be swayed by it.


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