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What does the Budget mean for manufacturers?

Overall, the 2013 Budget should be regarded as another step in the right direction for the UK SME manufacturing sector – but it would have been easy for George Osborne to go further with a more focussed approach.

As widely predicted, the Budget contained little in the form of major new incentives or changes in tax reliefs. It continued the theme of continual minor improvement in previously announced tax incentives which encourage the investment in start-up businesses, creation of intellectual property and also investment in plant and machinery by SMEs.

For new companies, the Budget confirmed the partial extension of the “CGT holiday” within the Seed Enterprise Investment Scheme, which is to be welcomed as the SEIS has been a catalyst for investment start-ups. However, whilst the new £2,000 NIC credit offered to every business regardless of size is also welcomed, a more targeted approach which focussed the benefit solely on “small” businesses rather than including medium or large companies would have allowed more of the funding for the NIC credit to be targeted on the companies who need it most.

As many had speculated, not only will the mainstream rate of corporate tax have fallen to 21% by 2014, but in 2015 it will also align with the small companies rate at 20%. This reinforces the UK at the top of the league for mainstream tax rates within the G7 countries and will help manufacturers in the UK to compete more evenly with established low tax countries such as the Republic of Ireland.

The 2013 Budget also confirmed some minor changes to the final proposed forms of a number of tax reliefs which go live from 1 April 2013 and which will be of benefit to companies in the manufacturing sector, including the ‘Above the Line’ R&D tax relief and the Creative Sector Tax Reliefs.

It is worth restating that the UK does now have a generous range of tax reliefs which can substantially reduce the cost of new product development through the use of:

• A Patent Box which reduces the tax rate charged on a broad range of income derived from patents to 10%.

• R&D Tax Reliefs on qualifying expenditure incurred for SMEs at 225% and large companies at 130%.

• R&D Tax Credits for both loss making SMEs and also loss making large companies who can now receive a credit based equivalent to 10% of their “above the line” R&D expenditure.

The Budget also confirmed the short term increase in the Annual Investment Allowance to £250,000 for each of the 2013 and 2014 calendar years. This increased AIA is a measure which companies should ensure that they use if possible to reduce the cost of investment in new plant.

Companies in the manufacturing sector should also remember that the Enterprise Management Incentive share scheme has been improved and from April 2013 it will be possible for staff to qualify for Entrepreneurs Relief on “exit based” share options where the holder has an option over less than 5% of the share capital of the company.

The Budget also included welcome commitments to increase the access to funding for SMEs through the UK’s new Business Bank and an additional £300m investment funding programme. The adoption of the new Single Local Growth Fund to decentralise grant funding is also welcome, but the success of a single fund for a region will depend on the bidding of the region’s Local Enterprise Partnership and some LEPs are notably more strongly resourced and co-ordinated than others.

Finally, two anti-avoidance measures which companies in the manufacturing sector should have an awareness of are the UK’s new “General Anti Avoidance Rule” and also measures to block the use of offshore “umbrella” structures for the provision of contractors. The General Anti Avoidance Rule will need to be considered by companies in respect of any tax planning or mitigation, and the block on umbrella companies has come as a consequence of an increase in the use of such structures by persons who typically may be either short term hires or acting as contractors. Companies in the sector should be aware they may be impacted by both measures.

If you would like a copy of our Budget report or to discuss any areas of the Chancellors announcement please contact Alastair Wilson on 0191 285 0321 or email alastair.wilson@taitwalker.co.uk.

This was posted in Bdaily's Members' News section by Tait Walker .