As Rachel Reeves prepares to unveil her first Budget on 30 October 2024, businesses in the manufacturing sector are waiting to see if there will be measures that could bolster growth and competitiveness. BHP Tax Partner Zoe Roberts outlines some areas where she thinks the Budget could make a significant impact.
Supporting innovation
Research & Development Tax Reliefs have been in focus for much of the last few years, and while some attention was undoubtedly required to the operation of the previous scheme, the changes and somewhat heavy-handed nature of HMRC enquiries have introduced a level of uncertainty for businesses who had been used to claiming the relief to support the development of their intellectual property.
Expanding the scope of qualifying expenditures, reconsidering restrictions or providing additional credits for specific sectors, such as technology and life sciences, could settle this doubt in the sector and incentivise more companies to invest in innovative projects. Changes to ensure that small and medium-sized enterprises (SMEs) are also incentivised would also be welcome given that they play a critical role in the UK’s innovation landscape.
Capital allowances
With full expensing giving an unlimited 100% allowance for most capital spend on plant and machinery, some might think that this is already as generous as it can get. But the previous Super Deduction, which gave temporary 130% allowances between 2021 and 2023, showed that enhanced allowances can be powerful tools in encouraging businesses to invest in their kit.
Introducing targeted enhanced reliefs for certain types of kit such as UK produced machinery, energy-efficient or AI technology may be a way to support UK manufacturers to invest more heavily in their capital assets, driving innovation and efficiency.
Green tax incentives
With sustainability becoming a central focus for businesses worldwide, the manufacturing sector would welcome robust green tax incentives. Zoe advocates for policies that support the transition to environmentally friendly practices. The introduction of tax credits for investments in renewable energy sources and energy-efficient technologies could not only reduce the carbon footprint of manufacturing operations but also lower operational costs in the long run. Such incentives would align with the UK’s broader environmental goals and position the manufacturing sector as a leader in sustainable practices.
Incentives to employ staff
The manufacturing industry faces ongoing challenges in attracting and retaining skilled workers. With the Labour manifesto including various pledges to enhance employment rights and increase employment costs to balance the impact on employers and incentivise them to invest in their staff, the Budget could include incentives for businesses to hire and train employees. The declining rate of apprenticeships offered and taken up highlights that a rethink or overhaul in this area is required. By reducing the financial burden of training new staff, these incentives would help bridge the skills gap and ensure that manufacturers have access to a capable workforce.
Incentives to invest in UK trading businesses
To stimulate economic growth, it is vital to encourage investment in UK trading businesses. Zoe highlights the importance of tax incentives that attract both domestic and foreign investors. Measures such as reduced corporate tax rates for new investments or reliefs for investors could make the UK a more attractive destination for business expansion. These incentives would not only boost the manufacturing sector but also have a ripple effect across the entire economy, fostering innovation and competitiveness.
Conclusion
As the UK Budget announcement approaches, the manufacturing sector is hopeful for policies that will support its growth and sustainability with room for targeted measures in capital allowances, green tax incentives, employment incentives, and investment incentives. By addressing these areas, the Government can provide the manufacturing sector with the tools it needs to thrive in a rapidly changing economic landscape. While Rachel Reeves has been busy setting expectations for likely tax rises, she has also been vocal on the path to recovery being led by private businesses. The upcoming Budget offers her a chance to establish a more resilient and dynamic manufacturing industry in the UK, which we hope she will seize.
