Super-investment for UK manufacturers

The UK food and beverage industry is an economic powerhouse, larger than the automotive and aerospace sectors combined. In the UK, food and beverage accounts for around a fifth of all manufacturing and contributes almost £29 billion to the country’s economy. Annually, food and drink exports are worth over £22 billion.

However, like other industries over the last year, the food and drink sector is struggling with several critical challenges. Firstly, with a third of the industry’s 400,000 workers coming from the EU, Brexit has put added pressure on the labour supply and sourcing skilled people to fulfil manufacturing roles has become increasingly challenging.

Then there are commercial challenges. Food and drink companies have to manage volatile prices for ingredients and customers’ fast-changing preferences. In addition, in the wake of recent food safety scandals (including the co-op recalling packs of meatballs after pieces of plastic was discovered), manufacturers are facing relentless pressure to meet rigorous international operating standards.

Against this background, it is no wonder that most F & B manufacturers are struggling to ramp up their productivity. Accountancy firm BDO, which conducts an annual survey of the sector, found last year that 89% of manufacturers thought productivity improvement was a critical priority for the year ahead. But with all these challenges, how can they realistically achieve this?

Fiscal support for manufacturers including F & B
The UK government’s recent announcement during March’s budget should offer some fiscal support to assist productivity. When Rishi Sunak swooped in with his red box, he revealed good news for manufacturers with the largest investment allowance ever thanks to his super-deduction initiative.

Investment support for compressed air systems
The capital tax scheme allows businesses to offset 130% of the value of all new equipment and machinery. And where manufacturers may have been postponing capital investment in replacing aging equipment, the plan is designed to push investment decisions forward. This initiative crucially includes the purchase of new compressed air systems, dryers, blowers, chillers, and nitrogen generators.

Where manufacturers may have faced another year or two of machine downtime and stoppages, new equipment and systems will enable productivity to thrive. With class 0 oil-free air compressor systems, predictive maintenance, and further digitalisation, even factors like health and safety and the labour shortage will be less problematic.

The scheme which will run for two years, from 1st April 2021 to 31st March 2023, is good news for businesses looking to buy additional machines or replace aging equipment. It makes sense for UK businesses to look ahead and bring forward investment plans rather than waiting.

How does super-deduction work?
If your asset, for example is £100,000, you can offset 130% (£130,000) against your taxable profit. The corporation tax rate is 19% so that equates to a saving of £24,700.

Example 1: £100,000 x 130% x 19% = £24,700
or
Example 2: £50,000 asset x 130% x 19% equals £12,350
or
Example 3: £15,000 asset x 130% x 19% = £3,705

We know it’s challenging right now, and we will be feeling the effects of the pandemic for years to come. But talk to the team at BOGE Compressors Ltd as we can work with you on your upcoming projects to ensure you can not only access this allowance but ensure your equipment is the most cost-effective over the lifetime of the machinery.

Find out more about the super-deduction

You can find the government guidance on super-deduction here:
https://www.gov.uk/guidance/super-deduction

Additional information from the British Compressed Air Society can be found here:
https://www.bcas.org.uk/time-to-invest-in-captial-equipment-super-deduction-tax-break.aspx

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