New tax breaks for green investments
The new Full Expensing (FE) scheme gives companies tax breaks for selected machinery investments. This short guide from Bohle gives you the basics.
Jeremy Hunt unveiled new tax breaks to encourage businesses to invest in March’s budget. Called Full Expensing (FE), the scheme will allow firms to claim up to 100% of the cost of the selected investments including IT and machinery to be immediately deducted from a company’s profits when calculating their tax bill.
The aim is to encourage companies to invest through tax breaks and address the deficit in capital expenditure and investment in long term growth between the UK at 10% of GDP compared to an average of 12.5% by other developed economies.
In practice this means that until March 2026, for every £1 invested in qualifying expenditure, businesses will be able to save up to 25p on their tax bill, something which Dave Broxton, managing director of Bohle, argues glass processors should be taking advantage of.
“We don’t have a great track record in UK manufacturing of investing for the long term. A lot of companies saw growth during the pandemic but delivered it by sweating assets,” he says.
“The Government wants to encourage investment. Through what ultimately represents an extension of the super-deduction scheme in all but name, it is making incentives available to businesses who invest in their future productivity, through tax relief.”
- How does the FE differ to super-deduction relief?
The super-deduction scheme was launched by Chancellor Rishi Sunak on 1 April 2021 and allows companies to access a capital allowance of 130% on qualifying plant and machinery investments.
FE will only allow companies to deduct 100% of costs. “Although lower than super-deduction, things under Full Expensing work out to be more or less equal to it because of the increase in corporation tax from 19 to 25% this year.
“This means that you’re still going to save around 25p for every £1 invested in new machinery and equipment.
“FE also means that companies can deduct 100% of the cost from their profits straight away – rather than more slowly over the life of the asset.”
- What are qualifying expenditures
Under FE, capital investment must be in new and unused assets that qualify as main pool expenditure, subject to some specific exclusions including second-hand machinery and plant equipment.
Plant and machinery expenditure which is incurred under a hire purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.
Generally, these assets are treated as belonging to the business using them even though legal ownership may not pass until a final payment is made at the end of the contract term.
“It’s worth noting that any interest on hire purchase items are classed as a revenue or trading expense, not as a capital expense, so it can’t be claimed back, so it makes sense to purchase outright if you can,” Dave says.
The scheme also can’t be used to purchase machinery or plant to then lease on to third-parties.
- How much could I save?
In practical terms, the capital allowance of 100% under the FE Scheme would mean that, if you commit to spend £100,000 on plant and equipment, you can deduct £100,000 from your taxable gross profits. With Corporation tax now at 25%, that equates to a saving of £25,000 – pretty much the same rate as under the super-deduction.
- What could I buy as a glass processor?
There’s flexibility on what you can buy but given the focus of the scheme, investments which make your business more efficient are in practical terms, going to be easier to secure.
“Sedimentors are one example,” continues Dave. “They can help you cut waste-water, improve tooling and deliver better edge-quality by keeping coolant cleaner, helping you to make long-term efficiency gains and increasing your profitability or capacity, as part of the process.”
For example, the cost of cleaning or changing coolant quickly adds up. Using just 400 litres of water as part of your weekly cleaning cycle equates to a yearly water consumption of approx. 20,000 litres as well as high cost for its disposal.
Although a lot of glass processors rely on centrifugal water cleaning systems, they can’t filter glass particles < 5 µm. This is something which, can over time, contribute to lower product quality and a build-up of concretion in machinery and tanks.
Suitable for a wide assortment of grinding, drilling and sawing glass equipment, Bohle sedimentors use a different approach.
A sophisticated and automated, multi-stage process removes contaminants from coolants and water. This includes filtering of glass particles of < 5 µm or less but doing so using far less energy.
“Sedimentors can save processors thousands of pounds a year in downtime by reducing the maintenance requirement to clean machinery and water tanks or replace tooling – increasing manufacturing capacity by as much as 15%.
“For glass companies that are looking to build capacity, as well as operate more sustainably, it’s a very cost-effective capital investment, which also qualifies under the Full Expensing tax relief scheme.”
