Autumn Budget 2025: Manufacturing Sector Commentary

The Budget introduces a 40% first-year allowance (FYA) for new main-rate plant and machinery from January 2026, alongside a cut in the Writing-Down Allowance (WDA) from 18% to 14% from April 2026.

Whilst this is intended to encourage investment most incorporated manufacturing businesses already benefit from the £1m Annual Investment Allowance and an entitlement to claim full expensing relief on new plant and machinery both of which already provide relief at a higher rate. Therefore, these businesses will primarily see a reduction in their annual tax relief claims as a result in the reduction of the annual writing down allowance.

The exception will be those businesses that have their significant plant ring fenced in a standalone entity for commercial protection purposes. As lessors to the group, they will now be entitled to claim the 40% FYA which will provide significant benefits in the year of investment where they have used their full annual investment allowance entitlement.

Unincorporated manufacturing businesses who use their full Annual Investment Allowance entitlement will react positively to the changes which will ensure that over a 5-year investment cycle they will have a higher rate of relief.

The Budget extends targeted business-rates reliefs and pilot reforms, offering partial relief for manufacturers with mixed-use estates or customer-facing spaces, such as showrooms or hybrid warehouse-retail operations.

However, the impact is uneven: large factories or high-value industrial sites may see little direct benefit, and the patchwork of regional pilots increases administrative complexity. Businesses with multiple sites will need to model cashflow impacts carefully and consider engagement with local authorities to capture available reliefs.

Energy measures continue to support industrial electricity users through incentives for onsite generation, energy efficiency projects, and EV charging infrastructure. These steps can lower long-term operating costs, particularly for energy-intensive sectors like steel, chemicals, or food processing.

The challenge is that benefits accrue gradually and require upfront capital, which may be a barrier for smaller manufacturers or those facing volatile energy markets. While the Budget signals intent to reduce industrial electricity costs, it stops short of structural reforms that would significantly improve competitiveness for the most energy-heavy industries.

The Budget significantly expands Enterprise Management Incentive (EMI) schemes from April 2026, raising employee limits from 250 to 500, gross assets from £30m to £120m, total share value from £3m to £6m, and the option exercise period from 10 to 15 years.

Whilst we welcome this as a positive measure the 2025 business population statistics published in October 2025 show that there are only 8,335 private sector businesses with more than 250 staff and many of these will be substantially over the 500-employee limit so the pool of companies affected will be limited.

Existing EMI agreements can also be amended to benefit from these new limits. This is a major positive for growing manufacturers: it allows share options to attract and retain key talent such as engineers and senior staff, aligns employee incentives with long-term growth, and makes ownership schemes more viable for mid-sized businesses.

The caveats are that EMI is still subject to eligibility rules, trade restrictions, and compliance requirements but this does create a mechanism to incentivise staff in a highly tax effective way and to potentially manage some of the impacts of the longer-term tax announcements including the announcement around salary sacrifice.

Research & development and ownership planning also bring both opportunities and constraints. The Targeted Advance Assurance Service allows SMEs to obtain pre-approval from HMRC on R&D claims, reducing uncertainty and speeding access to tax credits – a clear positive for manufacturers investing in innovation helping to manage the cost of finance.

At the same time, the merged R&D scheme applies stricter definitions of qualifying work, with a focus on technical uncertainty, documentation, and evidence, meaning more time needs to be invested in the claim process during the innovation process to ensure claims are optimised.

On the ownership side, Employee Ownership Trust (EOT) capital gains relief has been reduced from 100% to 50%, making EOTs less attractive for owner-managed manufacturers planning succession or exit strategies.

The Budget reinforces support for apprenticeships and investment schemes such as EIS and VCT, helping manufacturers address skills gaps and attract growth capital. These measures support advanced manufacturing, robotics, clean tech, and materials science sectors. However, funding remains modest relative to the scale of the workforce and skills challenges, and the benefits will take time to materialise. Manufacturers will need to engage with training bodies and plan long-term workforce development to fully capture these incentives.

FYA for businesses not benefitting from full expensing, EMI expansion to retain key talent, and R&D assurance to reduce risk.

At the same time, there are constraints – slower long-term WDA relief, stricter R&D rules, reduced EOT benefits, and patchy business-rates relief. The key opportunities lie in timely, well-planned capital investment, disciplined R&D, and strategic workforce/ownership planning, while the risks highlight the need for careful financial and operational forecasting.

1. Review Capital Expenditure strategy to assess the impact of the capital allowance changes on the timeframe for relief.
2. Reassess energy strategies and feasibility of efficiency or onsite generation projects.
3. Explore EMI for talent retention and ownership alignment.
4. Audit R&D and succession plan for compliance with the new merged scheme.
5. Map skills gaps and engage with apprenticeship/funding programs.
6. Review succession plans