Andrew England – Manufacturing specialist
Fiscal incentives for UK manufacturers must go ahead now (not wait for end of transition period)
The UK is navigating an uncertain Brexit transition period, that makes it essential the UK’s Manufacturing sector has support from fiscal incentives, to promote investment.
Despite the Confederation of British Industry (CBI) announcing a “welcome lift in business confidence” at the start of 2020, the Government must not neglect the needs of SME businesses, which form the backbone of the UK economy. I’ve highlighted some of the incentives that would help to strengthen confidence and promote investment in the sector.
During the Budget announcements, many tax specialists are urging the Chancellor to confirm that the rate of R&D relief available to large companies to claim under the Research and Development Expenditure Credit (RDEC) scheme will in fact increase by one per cent (from 12 to 13 per cent). Along with this the Chancellor should take the opportunity to increase the scope of the existing scheme, making it include costs for investment in cloud computing and big data analytics.
Many manufacturers are already investing in AI, big data analytics and automation in order to drive efficiencies and support them in making more accurate predictions about market demand and build more resilient businesses. Uncertainty is holding others back however, and this could destabilise the economy unless steps are taken to incentivise investment in these critical areas. R&D relief is the obvious way to achieve this and steps should be taken to incentivise investment in R&D by all manufacturers – large and small.
Annual Investment Allowance
Further certainty is needed surrounding the Annual Investment Allowance, which is currently set at £1 million but is expected to revert to £200,000 from 1 January 2021.
Investment requires confidence, and this can’t happen in a climate of uncertainty. Manufacturers need to know what is happening to the AIA so they can understand the costs of new plant and machinery and invest in their growth plans. The Chancellor could address this by either increasing the allowance or extending the current limit until at least the end of 2022.
Alternatively, if a blanket increase in the AIA limit is considered too costly, the Chancellor could select specific areas of capital expenditure, which might qualify for enhanced tax relief (say, of up to 110 per cent of cost) – for example, investments in robotics, AI systems, data integration, 3D printers and other value-driving tech.
This Budget may be the end of Entrepreneurs Relief (ER, the scheme was intended to encourage business investments by providing favourable rates of Capital Gains tax to business owners on the disposal of all or part of their business. The relief may be under threat after saving business owners an estimated £2.2bn per year, following a report that suggested the relief was not boosting entrepreneurialism in the way it was intended.
While it would be a big step for the Government to completely remove the idea of rewarding owners and investors for risking their capital, as a minimum we expect to see reform of the relief, designed to reduce the tax cost. This might involve reducing the £10m lifetime allowance, increasing the level of active involvement required in the business, limiting access to new businesses, or those who reinvest their sale proceeds within a limited window.
We hope that any restrictions to ER will be offset by measures to enhance incentives for start-ups and growth businesses. This would continue to communicate the message that Britain is open for business, helping organisations to plan their long-term investment strategy.
Impacts of the coronavirus on the manufacturing sector
To manage the impact of the Coronavirus on manufacturers particularly where they source goods from affected countries or suffer reduced production capacity due to sickness and self isolation, we would like to see measures to support the industry deal with the associated challenges and particularly any resultant cashflow difficulties including increased support via the Time to Pay Scheme.