George Osborne’s Budget for “makers and doers” opened up a whole host of opportunities for Midlands manufacturing companies, according to accountants Crowe Clark Whitehill.
Johnathan Dudley, national Head of Manufacturing, said: “Taken together there are a number of actions that Midland manufacturers can take to capitalise on valuable allowances and reliefs.”
He said he was delighted that the Chancellor had heeded his call to extend the Annual Investment Allowance (AIA).
“However, the Chancellor claimed that with the doubling of AIA from £500,000 from April 1, 2014, 99.8 per cent of businesses would now be able to qualify for immediate 100 per cent tax relief for all spending on plant and machinery and other equipment for the workplace.
“This is quite a claim and not necessarily the reality for many businesses. For groups of companies the AIA limit is not available for each company, but instead has to be shared between all companies within the group.
“Also, where an accounting period straddles April 1, 2014, there are some complicated transitional arrangements that have to be considered.
“What is apparent is that the timing of planned capital expenditure in excess of £250,000 is critical in order to maximise tax relief. Get the timing wrong and the immediate tax relief may not be available even though the total expenditure is less than £500,000,” he pointed out.
He added it was important to note there are a number of other types of assets that attract immediate 100 per cent tax relief and there have been a number of changes to both the types of asset and the criteria that have to be met in order to claim 100 per cent tax relief.
Qualifying assets include the purchase of new electric cars with gas emissions of 95gm/km or less. From April 1, 2015, the level of emissions will further reduce to 75gm/km.
There are over 128 models of low emission cars and 12 electric cars which could qualify for 100 per cent relief.
Mr Dudley said: “As there are currently only 22 cars with emission levels of less than 75gm/km, any high volume purchases of low emission cars which are likely to be less than 95gm/km but greater than 75 gm/km should be made before April 1, 2015.”
Other assets qualifying include expenditure on plant and machinery and other equipment used in research and development.
Also, expenditure on energy saving plant and machinery and on water saving plant.
A list of qualifying assets can be found on the Enhanced Capital Allowances website at www.eca.gov.uk and www.eca-water.gov.uk and legislation will be introduced to modify the existing list of qualifying technologies and to extend it to include two new technologies: active chilled beams and desiccant air dryers with energy saving controls.
Legislation is already in place to provide 100 per cent ‘business premises renovation allowances’ for capital expenditure incurred on the renovation or conversion of business properties that have been unused for at least a year in certain specified disadvantaged areas of the UK.
Further legislation will be introduced to clarify the scope of the expenditure so that relief is only available for the actual costs of construction and building work and certain other associated costs.
The availability of 100 per cent capital allowances for companies investing in new plant and machinery in designated Enterprise Zones is to be extended to March 31, 2020.
Mr Dudley said: “We can help review your capital expenditure to identify assets falling within any of these categories.”
The Chancellor also extended the tax relief available for innovations, including the Research and Development (R&D) tax incentives.
SMEs can benefit from an additional tax deduction of 125 per cent beyond the 100 per cent normally available by making a research & development claim.
Mr Dudley pointed out: “This, together with the proposed increase in the rate at which research and development tax losses that can be cashed in, means there is a real incentive to take a risk and invest time and resources into developing innovative products and processes.”
Whether the innovation succeeds or not, from April 1, 2014, a loss-making SME will be able to claim a rebate of £32.63 compared with the current rebate of £24.75 for every £100 invested.
Mr Dudley said: “With less than 10,000 research and development claims being made by SMEs in the past year, and an estimated 125,000 SME manufacturers in the UK, there must be a large number of companies, many of them in the Midlands, missing out on this valuable tax incentive.”
Above the Line (ATL) is a ten per cent taxable credit only available to large companies introduced on April 1, 2013. It is slightly more generous alternative than the alternative 30 per cent tax uplift.
Mr Dudley explained: “The taxable credit is offset against R&D expenditure in the accounts, similar to a grant. This gives more visibility to the R&D department and an overall cheaper R&D cost. “For tax paying companies the credit can be offset against the company’s tax liability and, in certain circumstances, for companies with a nil tax liability, or a liability that is less than the taxable credit, there is potential to make a tax repayment claim.
“Whether your company is an SME or a large company, we can help your company maximise any available tax relief by preparing the R&D claim.”
And he advised manufacturers to make the most of the Patent Box incentives sooner rather than later.
“The Patent Box is a reduced rate of corporation tax applied to Patent Box profits in companies that develop and exploit patented processes or product. Despite the contention by some EU members that this is anti-competitive, the UK Government’s view remains that the Patent Box is here to stay.
“The rate of tax applied to Patent Box profits was initially set at 15.2 per cent, compared to the main rate of corporation tax of 23 per cent.
“From April 1, 2014, the rate will reduce to 13.3 per cent – the main rate of corporation tax is 21 per cent – and it will gradually taper down to ten per cent by April 2017, when the main rate of corporation tax is expected to be 20 per cent.
“If your company develops or uses patents, consider how the Patent Box tax incentives might apply,” he said.
And he said there were further incentives available to companies located in Enterprise Zones.
Business rate discounts are being extended for five years and enhanced capital allowances are being extended to March 31, 2020, for certain businesses located in Enterprise Zones.
And he welcomed the Government’s plans to support manufacturers who export.
“The Chancellor has announced that the government is to overhaul the UK Export Finance’s direct lending programme by increasing the number of loans to exporters to £3 billion and cutting the interest rate by one third.
“The aim is to give Britain one of the most competitive export finance schemes in Europe, but the initiative has been criticised both for its lack of detail and for failing to bring clarity to the plethora of different agencies and schemes offering help to exporters.
“We would urge the Chancelllor to address this and seek to make the assistance both simpler and faster to access,” he said.
There will also be a consultation on introducing legislation that would force all banks to refer credit starved SMEs, that they have turned down for finance, to alternative lenders.
Mr Dudley said: “This should be viewed as a positive step toward providing vital ongoing finance to SMEs, but a more enlightened view on a company’s credit worthiness in the first place might be a simpler and more direct solution.”
The Chancellor has announced a number of measures to help reduce the PAYE and National Insurance burden in order to help get as many people as possible back in to work.
Under 21 s will be exempt from National Insurance.
Apprenticeships are seen as playing a vital role to equip young people with the skills they need to make a positive contribution in the workplace which in turn helps employers to grow their business. The Gvernment has declared its commitment to fund 100,000 new apprenticeships and the manufacturing industry is likely to be a major beneficiary of this.
The increase in the personal allowance to £10,000 and the £2,000 discount from Class 1 employer’s NIC liability should reduce both the employees and employers’ overall tax burden especially for businesses taking on part time staff.
Mr Dudley said: “As you can see there are a host of opportunities available to manufacturers, but expert advice is essential to ensure that you use them to their maximum benefit and avoid any unintended consequences that could have an adverse impact on your cashflow or your profits.”