UK manufacturing companies could be missing out on “millions of pounds” left unclaimed on their digital transformation projects, simply by not knowing they exist.
British firms could stand to claw back “serious amounts of cash” on their next digital implementation programme, using a four-point tax advice scheme recommended by BDO LLP.
Here, the firm’s business tax and real estate partner, Joe Newton, offers four tax deduction options that could help manufacturers to manage the cost of data centre power supplies, increase installation and generators, and R&D equipment.
Server room ventilation and air conditioning systems are among the features that could be eligible for capital allowance write-downs of around 6% a year, according to Newton.
And although this is much lower than the 18% allowed for robotics, automated equipment and other plant machinery, when implementing an incremental digital transformation, this shouldn’t be disregarded.
Some recent investment by manufacturing firms in specific integral features at their sites could have also been covered by the Enhanced Capital Allowances (ECA) scheme, set to be abolished in April 2020.
The ECA, created to encourage manufacturers to fit energy-efficient technologies like heat pumps and air-to-air energy recovery systems, allows firms to write down 100% of the cost in the first year rather than spreading the benefit over several years.
“Needless to say, this can be highly valuable from a cashflow point of view,” notes Newton.
Annual Investment Allowance (AIA)
Automated machines, as well as integral features and fixtures on site, could be eligible for a 100% tax deduction under the Annual Investment Allowance scheme.
“In practice, this means that in a new data centre you may be able to claim much more than just the servers within it,” Newton says.
He adds that significant aspects of a manufacturing plant such as lifts, electrical systems, cooling, air supply and return plenums, back-up generators, and uninterruptible power supply systems could also be covered by the AIA.
The total AIA per company group is currently set at £1m, its highest level ever, but it does vary – and is only available to the end of 2020, at which point it will be reduced to £200,000.
It’s recommended that businesses bring forward any planned capital investment programmes in order order to maximise their potential manufacturing AIA entitlement.
The Research and Development Allowance (RDA) could enable UK manufacturing firms to claw back a portion of the capital costs incurred with investment in plant, equipment and buildings related to R&D work, for which firms may be “obtaining relief for the revenue costs of the work under the R&D expenditure credit”.
This is a 100% first-year allowance.
“The great advantage of the RDA is that it can be claimed against otherwise non-qualifying elements, such as building structures, and is not just claimable against the plant and machinery within the building” says Newton.
Structures and Buildings Allowance (SBA)
As of October 2018, the Structures and Buildings Allowance (SBA) offers manufacturing firms 2% capital allowance over 50 years for investment on new-built or renovated non-residential structures and buildings.
“This isn’t great in comparison to other schemes, but it does allow you to claw back cash that you might not be able to reclaim any other way,” said Newton.
Newton added that the Integral Features, ECA, AIA and SBA all have a degree of small print that UK manufacturers need to carefully scrutinise so as to get the full value.
Firms should also research which items are eligible against each type of allowance.