The headline issue for the sector was the increase to corporation tax rates and whilst this will significantly affect profitable businesses in the future there is at least a road map for businesses and some valuable short term incentives to invest in the future of the business as a result of the super deduction for plant and machinery spend, a valuable tool for a capital intensive sector, and the potential interaction of this with the extended three year loss carry back rules.
Can manufacturers prepare for the increase in corporation tax rates?
Given the current financial challenges facing manufacturing companies it is positive to see no immediate corporation tax rate rise and the timeframe for the rises is in line with our pre-Budget predictions and recommendations which allows businesses to plan for this. The 25% rate is higher than our original predictions and would impact significantly on businesses however the disproportionate impact of this on SMEs is recognised through a tapering of corporation tax from a 19% rate for businesses with less than £50k through to the rate of 25% starting for profits above £250k and it must be borne in mind that this is a tax on profits
Easements for loss-making businesses and incentives for investment
As a sector manufacturing has been significantly impacted by Covid related restrictions so the ability to carry back losses of up to £2m to the previous years is very welcome and could provide a valuable financial injection for those struggling businesses.
Automation and digitalisation are crucial to the development of the UK manufacturing sector to ensure it can compete on a global level and the introduction of a super deduction that will enable businesses to claim tax relief on 130% of qualifying plant and machinery expenditure and 50% of special rate expenditure could be a very valuable incentive to help boost productivity and efficiency and the potential interaction of this with the ability to carry back losses for up to 3 years could help provide much needed financial stimulus to support the cost of investment.
We had hoped to see some more support around R & D including some simplification over what qualifies and the scope of qualifying expenditure and whilst this is still on the government radar there was no immediate announcement that would support further investment
Following on from the recent consultation, the Chancellor announced in today’s budget, that eight Freeports will be located at East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool, Plymouth, Solent, Thames and Teesside.
Freeports will mean that businesses in the area may trade outside the UK customs regime, with import taxes not applying. The Chancellor said that Freeports will benefit from favourable tariffs, VAT or duties and lower taxes, including tax breaks to encourage construction, private investment and job creation and added that, the zones would ‘make it easier and cheaper to do business’.
It is hoped that Freeports will boost employment, create billions for the economy and assist industrial regions. Detractors however, say that it will create an opportunity to avoid taxes, creating UK tax havens.
Free Ports could be a real opportunity for manufacturers to establish facilities within these freeport zones to limit their exposure to tariffs particularly where they need to import goods to produce their products and then export to a global market
The manufacturing sector has been one of the most affected sectors when it came to furlough and so the news that the furlough arrangements will continue until September provides valuable support to the sector and, until July, when it is anticipated restrictions will have lapsed, businesses will not be asked to contribute towards the furlough and then only at a rate of 10% in July and 20% in August and September. Businesses would have preferred more certainty on this at an earlier stage but the relief will still be welcomed
Government backed loans
The announcement of a new range of government backed recovery loans allowing between £25k and £10m of borrowing for businesses that have been affected (with no personal guarantees below £250k) will be welcome by the sector but it will be important that the application process is straight forward, efficient and effective as many SMEs would benefit but can find be put off by the process and concerns over the prospect of a successful application.
Recruitment and training is important for the sector and the doubling of the apprentice grant to £3,000 for apprentices of any age will assist in the cost of training and help fund the training required and the new Help to Grow training schemes may be of interest to SMEs allow the to enhance management and digital skills.