Despite the UK recording an unexpected budget surplus in the first month of the year, the Chancellor is not expected to announce any significant tax cuts in his Spring Statement on 15th March 2023. His hands are tied by the high level of public debt, which has built up due to the pandemic and the impact of the war in Ukraine. However, the signing of the Windsor Agreement in Northern Ireland last week indicates that the current government is placing an emphasis on positive action, so fiscal changes can’t be ruled out.
Top of the list of concerns for UK manufacturers at the moment is the planned energy price cap rise in April and the immediate effect this will have on cashflow. Ideally, we would like to see the current energy support package extended for another six months. Research by Make UK shows that 52 per cent of manufacturers are expecting their electricity bills to double this year (42 per cent for gas), which is going to be very challenging indeed.
The Chancellor could also help businesses to plan with greater certainty and confidence by setting out a long-term view of the UK’s fiscal landscape and the direction of travel.
Other tax changes that are going to impact manufacturers significantly in the coming months include the planned rise in Corporation Tax, which is due to rise from 19 to 25 per cent at the start of April.
This increase in the headline rate of Corporation Tax will further eat into available cashflow at a time when costs are high and subject to change. To offset some of this cashflow pressure, the Chancellor should consider further extending the Annual Investment Allowance (AIA), which currently stands at £1m a year. For example, the AIA could be doubled, or even trebled, to help incentivise substantial capital investment programmes. Additional tax breaks for investment in renewable energy systems could also help to improve energy security and support the government’s new zero agenda.
Another much-valued incentive for manufacturers is provided by the R&D tax credits regime, which allows businesses to claim a cash payment or a discount on their Corporation Tax bill if they invest in developing new products, processes or services, or enhancing existing ones. From April, the credits payable to qualifying SMEs are being cut, along with changes affecting any additional deductions that they might be eligible for.
These changes will have a detrimental effect on many SME manufacturers, particularly those in early or pre-revenue phases, and are at odds with the government’s goal to create an environment that is attractive to R&D-led businesses. Depending on the outcome of a consultation, which is exploring ways to combine the R&D tax relief schemes that apply to larger businesses and SMEs, more change in this area could be on the way. For more information about the forthcoming Spring Statement 2023, visit here.
Andrew England, tax partner and manufacturing sector specialist at Menzies LLP.
Comment: How engineering innovations are transforming washing machine accessibility
I wonder if Mr Sawhney has considered a sit-on version, with pedals?