Warning that tax super-deduction could fuel ‘wasteful’ asset purchases
31 May 2021
The Chancellor’s much-lauded ‘super-deduction’ tax incentive could encourage companies to waste money on asset purchases in the rush to meet the two year deadline for the scheme, warn two leading tax experts.
Andrew Millington and Tristan Pulford of Finch Consulting warn that there is a danger the expected increase in investment will result in too little consideration to the effectiveness of purchased assets in the production process, their operational efficiencies and their compliance with health and safety regulations.
“If this is not done the super-deduction becomes a potential waste,” the autors warn in their report.
“Many businesses will be moving into a phase of longer-term investment, but the introduction of the super-deduction has been put in place to accelerate these plans, so asset procurement is now part of businesses’ shorter-term strategy to take advantage of this significant incentive.”
With the scheme in place for just two years and procurement processes sometimes needing up to a year to specify and commission, the shortage of time for implementing decisions will have a significant impact.
However, Millington and Pulford caution that engineering assets carry risk, as the equipment and processes must be safe, reliable and efficient if they are to generate sustainable, profitable revenue and provide a good return on investment (ROI).
Breakdowns, accidents, poor product quality, environmental breaches and inadequate management systems can risk business reputation and investment capital they warn.
In addition, such events can attract huge fines that will be based on company revenues.
“The average level of fine has also shown an increase since the sentencing guidelines came into effect, rising from £27,000 per conviction in 2014/15 to £110,000 per conviction in 2019/20,” they advise.