Budget 2021: Overview of the key measures for North East manufacturers

As members of the Advanced Manufacturing Forum, the Engineering & Manufacturing Network and the North East Automotive Alliance, we work with a large number of manufacturers in the region and we understand how the changes in a Budget can have a very significant impact on the health of this sector, which is a key part of our regional economy.

We have summarised below our view on some of the key measures which will impact manufacturers and which were announced by the Chancellor in his 2021 Budget:

The changeImpact on manufacturersOur view
Increase in Corporation Tax rates to 25% with effect from 1 April 2023. Small companies rate of 19% retained for profits of less than £50,000 a year and a marginal rate of 26.5% for profit between £50,000 and £250,000.This will add to the cost base of many manufacturing companies in our region and it will reduce the cash available to invest after that date.

For many manufacturers, the small companies rate will be exceeded and so the tax rate of 25% may apply in full.
The increased corporation tax rate is disappointing and the change is a cliff edge rather than a phased approach. The increase in corporation tax is expected to be costing UK businesses approximately £17bn a year in additional corporate tax by 2026.

The manufacturing sector pays approximately 10% of the UK’s entire corporate tax each year and so this will be expected to be adding approximately £2bn a year to the manufacturing cost base by 2026.
The “super-deduction” for capital allowances. A temporary first year allowance rate of 130% will be in place from 1 April 2021 to 31 March 2023. Manufacturers who commit to spending on new, unused, assets such as production lines and other plant may be able to get a full tax deduction, including a 30% enhancement, for expenditure incurred prior to 31 March 2023. On one hand this “super-deduction” is a really encouraging policy as it encourages investment. However, capital allowances are effectively just an acceleration of relief and without the introduction of the superdeduction some manufacturers may have deferred non essential expenditure until they were able to get tax relief at 25% from 2023.

Without the super-deduction expenditure prior to 2023 which qualified for the AIA would get tax relief at 19% but then the depreciation would be added back partly at 25% – so actually costing more for the business.

So the super-deduction is sensible but without it many businesses would have paused investment until the higher tax rates came into force.
Enhanced use of tax losses including an additional carry back of up to two years for company accounting periods ending in the period 1 April 2020 to 31 March 2022. This may benefit manufacturers who have incurred tax losses, where those tax losses haven’t been used on other ways (eg are not surrendered for R&D Tax Reliefs) may now be able to carry back the losses to periods where it may be possible to recover additional amounts of tax. It may facilitate the ability to recover tax from eg 2018 or 2017 periods whereas normally only the prior period (so eg 2019) is normally able to be accessed. This is welcome news on one hand as it may unlock additional tax from prior periods. However it is also encouraging businesses to utilise losses at 19% which otherwise may save tax in the future at 25% so there is a “cost” of using the losses in this way (it is not entirely a giveaway by the Chancellor).
Extension of furlough to end of September 2021The extension of furlough will help businesses to bring back their staffing capacity to pre-Covid levels in a controlled manner by (hopefully) enabling any temporary reduction in staffing to be managed via furlough but unwound over the summer. This is to be welcomed as it enables manufacturers to plan for the removal of lockdown and plan for what is hoped to be a fast recovery to normal economic activity Help to Grow – a £520m fund to support SME’s with training for their senior management and also digital technology useover the summer months.
Help to Grow – a £520m fund to support SME’s with training for their senior management and also digital technology useSMEs with up to 249 staff will be able to apply for funded training for key decision makers and also certain IT projects (including CRM and online sales). We would see this as a very sensible aspect of encouraging growth within SME businesses and which may help them to grow faster where they are able to compete more evenly with online businesses as a consequence.
Consultations into R&D Tax Reliefs and Enterprise Management Incentive schemesBoth R&D Tax Reliefs and EMI schemes are used extensively within the manufacturing sector in our region – so the outcomes of the consultations may impact a lot of businesses in our region.We will be feeding into both consultations to ensure that any amendments enhance the legitimate use of both R&D Tax Reliefs and EMI schemes to support the regions manufacturing sector.
What didn’t changeImpact on manufacturersOur view
The administrative burden of Brexit and cross border tradingMany manufacturers are struggling to deal with the ongoing red tape and administration which is continuing to hinder trading cross border (or trading with Northern Ireland). The Government need to step up their efforts to agree simplified arrangements with the EU in relation to trading both with the EU itself but also Northern Ireland.

Contact us

For further information, please contact Alastair Wilson at alastair.wilson@taitwalker.co.uk.