Budget 2020 – What does it mean for manufacturers?
Our Tax Partner, Alastair Wilson, shares his thoughts on what the Budget 2020 announcement means for manufacturers.
Under the circumstances, the Budget was well balanced in responding to the short term challenges of COVID-19 and the longer term aspirations for accelerating growth in the economy and the manufacturing sector.
In terms of short term responses to COVID-19, the commitment from the Government to refund the cost of COVID-19 linked Statutory Sick Pay to employers with less than 250 employees for up to 14 days will be welcomed. In particular, the likely extension to providing refunds for self isolation for other symptoms will help those manufacturing businesses where staff are required to self isolate with other symptoms and where working from home is typically impractical.
In the manufacturing sector, the Coronavirus Business Interruption Loan Scheme will also provide more comfort that funding sources will be available for businesses who are being adversely impacted by COVID – 19. In conjunction with the reduction of the Bank of England base rate to 0.25% on the same day as the Budget, this should hopefully convert into readily available finance for SME businesses in the sector at a time of uncertainty.
In the longer term for the manufacturing sector, the extension of the R&D Expenditure Credit to 13% and the Structures and Building Allowance to 3% will both be welcomed as they support investment in R&D and new manufacturing facilities. Equally, the Government has committed to substantial public sector funding for R&D carried out by (for example) universities which is typically carried out in conjunction with manufacturers or results in spin out companies. This is a clear demonstration of support for a sector that was concerned that the exit from the EU would result in less funding for R&D projects in the UK.
However, not all was positive for manufacturers. The Budget has confirmed that the rate of Corporation Tax is remaining at 19% (rather than reducing to 17% in April 2020, as was originally enacted) and this will impact negatively upon the cashflow of profitable manufacturers. The largest contributor to additional taxes to be raised is from the u-turn on the reduction in Corporation Tax.
The reduction of the lifetime allowance for Entrepreneurs’ Relief from £10m to £1m is also unfortunate as it was a relief which actively encouraged succession planning in larger manufacturing businesses and we may see less appetite for retirement for some manufacturing business owners. The proposed Plastic Packaging Tax is forecast to raise more than £200m a year in tax from 2022 and a large part of that cost is likely to end up within the manufacturing sector. The Budget was also devoid of any significant new measures to encourage businesses to hire apprentices or encouraging wider employment in the sector.
But under the circumstances, the Chancellor has produced a budget which has provided some positive news for the manufacturing sector.