Partner Article

Financial incentives that help boost growth for SME manufacturers

Although George Osborne’s 2014 Budget included several pre-election tweaks and crowd-pleasers, his announcement has offered some hope for SME manufacturers in the form of tax incentives and opportunities to re-invest in business growth.

With family businesses providing nine million jobs and making up 70 per cent of all UK manufacturing firms, the Government has stated that providing support to this key sector is a priority. However, few SMEs feel that they’ve seen the level of encouragement necessary to help them reap the rewards of the improving economic climate.

The UK economy may be in recovery, but many small manufacturers are still struggling to generate enough funds to expand their business, or capitalise on new opportunities in the market. The announcement that corporation tax rates will be cut from 23 to 21 per cent will provide some relief for business owners by freeing up revenue that can be invested in upgrading their manufacturing facilities.

The unification of Corporation Tax rates at 20 per cent from 2015 onwards will also help. In addition, the Government announced that the business rate discounts will be extended for enterprise zones for another three years as part of its push for a more resilient economy.

For companies planning to buy equipment or machinery, it’s worth making the most of the current Annual Investment Allowance that has been increased to £500,000, to receive tax relief on purchases. The Government’s extension of this tax relief scheme until April 2015 is a welcome move that will help to reduce any financial strain on SME manufacturers that are actively fuelling growth of the UK economy.

In some instances, it’s possible to borrow money from your pension fund to help fund capital equipment purchases. In addition to being both quicker – and probably easier – to set up, paying interest to a pension fund is usually a better option for manufacturers than the bank.

Overall, the Government’s pension reforms represent positive changes for small businesses in the UK. The changes will make pensions a more acceptable savings vehicle for owner-managers of family businesses as well as SME’s. Plus, certain options – like the Small Self Administered Pension Scheme – can use funds within the arrangement to create affordable business loans and purchase company premises.

Another Budget measure that contributes to SME manufacturer growth is the Employment Allowance, which will come into effect next month. First unveiled during the 2013 Budget, the initiative will cut £2,000 off the National Insurance bill of all companies – significantly benefitting small businesses with fewer than 50 employees.

These savings free-up capital that can be invested back into the company, or used to increase the size of a manufacturer’s workforce. According to UK Trade and Investment, the allowance will mean that SMEs will be able to employ four adults or 10 18 to 20 year-olds full-time on the National Minimum Wage, without paying any National Insurance contributions.

With small businesses becoming increasingly important in helping to drive the UK economy, it is essential that SME manufacturers review the changes announced in this year’s Budget to see how they can benefit. The combination of corporate tax relief, pension reform and Employment Allowance will alleviate some of the financial pressures on small businesses and, in turn, should allow them to focus on investment and growth to boost the UK economy.

This was posted in Bdaily's Members' News section by Mike Carpenter .