Economists often quote productivity as being one of the key drivers for economic growth. Although recent findings by the Office for National Statistics (ONS) show that productivity across the UK economy is growing, other measures indicate that UK manufacturing is struggling to maintain growth.
Although there are many factors that will impact productivity in the manufacturing sector, business owners will no doubt be looking for ways to increase productivity in their own business.
For UK manufacturing businesses, productivity can generally be defined as a measure of turnover (output) per pound spent on labour or factory running costs (input). As such, to improve productivity (and therefore turnover) businesses will no doubt be looking to invest in the future, perhaps by way of new plant and machinery, some R&D to develop a new product or training to enhance the skills of the workforce (amongst other things).
In our experience, businesses are well aware of the benefits of investing in the future, but the economic climate may make some manufacturing business owners reluctant to invest large sums of money.
Although this is understandable, there are a number of tax reliefs and other benefits that businesses can access, which can significantly reduce the cost of investment. Some of the options available to UK manufacturing businesses include:
- R&D – expenditure on qualifying R&D projects can attract enhanced tax relief, with a cash receipt of up to 26p for every £1 spent of R&D. In addition, capital assets acquired to use for R&D activity (including buildings in some cases) can qualify for a 100% tax relief in the year of acquisition.
- Patent Box – profits generated on the sale of patented products (or where the business has an exclusive licence to exploit a patent) can benefit from a reduced rate of corporation tax of 10%. The rules are due to change in July 2016, therefore if your business has patents, get in touch with us as soon as possible.
- Capital Allowances – expenditure of up to £200k per annum (from 1 January 2016) on plant & machinery can benefit from a 100% deduction from taxable profits in the year of acquisition. Until 31 December, relief is available on up to £500k of expenditure, although care should be taken as to the timing of the acquisition will impact the relief available in the year of acquisition.
- National Insurance Contributions – Businesses that employ staff can benefit from a National Insurance holiday for the first £3k of employers NICs. Whilst not significant, this relief should be claimed to reduce a business’s tax expense. In addition, from April 2016 businesses that employ apprentices under 25 years of age will not incur employer NIC liabilities on wages paid to those individuals (up to certain limits).
- Grants – There are a number of grants available to fund capital or revenue projects, particularly where the grant is being used to fund innovative projects.
- Knowledge Transfer Partnerships – Some businesses could benefit from the services of a University graduate to help with a particular project being undertaken by the business. There are support costs to fund this type of activity, such that only roughly 1/3 of the total cost of employing the individual is borne by the company.
The incentives set out above, when taken together, can significantly reduce the cost of investment for UK manufacturing businesses. Although these reliefs are encouraged by UK Plc, the majority of them need to be claimed in order to benefit. As such, we recommend that you contact us to explore whether your business qualifies for any of these opportunities.
Scott Burkinshaw
Scott is Tax Partner at Shorts, specialising in providing strategic corporate and personal tax advice.
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