The Connected Factory – in the most tax efficient way
It is difficult to read any manufacturing and engineering related article without seeing reference to Industry 4.0 or the Fourth Industrial Revolution or The Connected Factory, dependent upon which title is preferred. The sector is currently presented with great opportunities that can arise from automation, the Industrial Internet of Things (IIOT), servitization and robotics. These advances in technology should enable businesses in the sector to increase output levels, improve quality and accuracy and reduce down time. Sceptics warn that increased automation will lead to lost jobs in the workplace but in practice this does not seem to be the case and many SME’s are investing in Human Machine Interface (HMI) technology to augment their manufacturing processes.
As business owners consider investing in advanced technologies to stay competitive within the market place, there is significant merit in researching the various products available, in addition to mapping out the time line for expenditure. The amounts involved can be substantial and it is vital that capex projects are well planned to take advantage of the various tax reliefs and allowances available.
Stagger the project
Subject to meeting the commercial objectives of the investment, where total expenditure exceeds the Annual Investment Allowance (currently £200,000 per annum for qualifying expenditure) , it may be worth considering deferring or advancing part of the project to stagger the expenditure over two financial years. There are rules that dictate when the capital allowance can be claimed so care needs to be taken to ensure these are adhered to, but staggering the capex project can mean the difference between an allowance of 100% in the year of expenditure or 18% write down on an ongoing basis.
Consider Enhanced Capital Allowances (ECA’s)
There are further opportunities to maximise allowances where qualifying expenditure is incurred on energy saving and environmentally beneficial plant and machinery. Where such assets meet the government’s approved energy efficiency ratings and are listed on certain databases populated by the Carbon Trust, such assets can qualify for ECA’s and receive the benefit of 100% tax relief in the year of expenditure.
Don’t overlook R&D expenditure
Companies should review their expenditure and consider whether there are any elements of Research & Development within the project. SME’s can claim an enhanced deduction against tax of 230% of the eligible costs incurred. R&D relates to activities treated as such under UK accounting practice, as modified by HMRC. Where work has been carried out to improve processes and overcome a scientific or technical uncertainty, a claim may well be possible.
This is an exciting and challenging time for the sector and investment in advanced technologies and factory connectivity is vital for many businesses. Whether the investment project is on a relatively small or large scale, taking the time to plan can have a real impact on the company tax position and therefore cashflow.
If you would like to discuss Industry 4.0 in more detail, or you would like to speak with a member of our team, please contact Ginni Cooper or call 01772 821021 to be put in contact with a member of our Manufacturing team.