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.

MHA Manufacturing & Engineering Temp Check: Round 2 is now open!

It’s a challenging time for the manufacturing sector and the wider world as the COVID-19 pandemic continues to impact our daily and working lives.

Last year, we undertook a national sector health check survey asking manufacturing firms across the UK how they have managed through the crisis.

We are running a second Manufacturing & Engineering temperature check to help us compile the latest nationwide picture of the state of the sector. Your feedback will help our specialist advisers gauge where the sector is and what can be done to respond to current challenges.  

This mini survey focuses on the impact of COVID-19 on the sector and how firms are responding to industry changes.    

The survey should take no longer than 1 minute. It will be used used to compile benchmark data, which will help us better understand how the sector is responding to current challenges.  

Complete the survey

Investment on Teesside

Andrew Moorby, our Managing Partner and Head of our Teesside office, welcomed the news that hundreds of jobs could be created in plans for the £150m Tees Valley steelworks project.

Tees Valley Mayor, Ben Houchen, has announced plans for a programme of demolition work across the Teeswork site. The £150m project, which will take place over the next five years, is expected to begin in March next year.

The news comes on the back of announcements in recent weeks of £17m Government investment in construction projects. Middlesbrough Station, a new Life Sciences Park at Central Park in Darlington creating 150 jobs and £4.1m to build new entrances, buildings, and facilities at the TeesWorks site.

Andrew said:

“Our firm can trace its roots in Teesside back some 60 years. Over that period there have been highs and lows and some false dawns but there certainly now seems to be a concerted effort to take the area forward and in doing so bring new industries to the area creating a more diverse and dynamic local economy.

Whilst the initial drive can come from local government, and, in particular the Combined Authority, we will all have a part to play if the area is to take full advantage of the opportunities put before us.

As a firm we are investing heavily to attract new talent and provide the bespoke training necessary in order to provide the specialist accounting advice needed by the new industries. We can help clients access grants and raise finance, take advantage of specialist tax reliefs and ensure that they are prepared now for whatever tomorrow will bring.”

He added:

“We advise a broad range of clients in the manufacturing and engineering sector and have built up a wealth of experience over the years. We help our clients with identifying opportunities for growth, diversifying into new sub-sectors and expanding internationally, so I am confident that the new Teesside projects will bring a wealth of opportunities to the sector.”

Our experience

Contact us

For further information please contact us at advice@taitwalker.co.uk.

MHA Manufacturing & Engineering Mini Survey

The MHA Manufacturing & Engineering specialist team works closely together to ensure our clients in the sector are supported during these challenging times.

We are running a Manufacturing & Engineering temperature check to help us compile a nationwide picture of the state of the sector. Your feedback will help our specialist advisers gauge where the sector is and what can be done to respond to current challenges.

This mini survey focuses on the impact of COVID-19 on the sector and how firms are responding to industry changes.

The survey should take no longer than 1 minute. It will be used used to compile benchmark data, which will help us better understand how the sector is responding to current challenges.

Take part in the survey


Advice for manufacturers during COVID-19

The COVID-19 outbreak has caused major disruption across global markets, with restrictions on human movement disrupting the majority of sectors.

Manufacturers are facing the problem of having reduced or totally absent teams, a pause to supply chains and an aggressive decline in customer demand. The resulting cashflow implications will be significant, with many fixed costs draining cash reserves and the uncertainty of lockdown periods making management decisions very difficult.

What can you do?

You should assess the recently announced government backed initiatives in order to ascertain what can be used and what impact they may bring.

The deferral of tax balances will bring an immediate cashflow saving and the use of the Coronavirus Job Retention Scheme can also yield savings. The Coronavirus Business Interruption Loan Scheme can also be considered for those businesses with proven viability and an historic financial performance that demonstrates the ability to service new debt.

What next?

Initial thoughts and decisions will be largely on an assessment of what options business owners have at their disposal and the ultimate execution of those options.

Business owners should also consider the working capital implications of exhausting reserves in the immediate term, with the problem looming as to how you can fund the recommencement of operations in the post lock down period.

You should therefore take care of your financial plan, with your eyes focused on the security you have pledged to external funders and that which may be sought during any CBILS application. Longer term assessment of overall indebtedness should also feature, with a lot of government initiatives being debt based, which by their nature will require repayment. This will therefore pose directors some challenge as they balance their wider responsibility to all business stakeholders.

How can you manage the cashflow risks?

A thorough and robust financial plan will be central to your business planning in the coming months. Additionally, the use of your advisers will be key during any negotiations undertaken with your funders. Capital holidays and short term facility extensions will provide temporary respite, but you should look beyond the initial period of uncertainty and retain some focus on what comes next.

The re-opening of markets will see the re-emergence of demand, but this may not be swift. A gradual build up could be in order for a lot of markets. The risk of customer and supplier failure should also be considered, with contingency plans drawn up.

The demands and pleas for prompt or upfront payment are likely and a natural drift in credit terms may also be imposed by your larger clients. You should therefore assess those impacts and build a cash buffer, with attention required on the covenant suite your funders will have in place. Keeping your books and records up to date will therefore be imperative and allow maximum flexibility as you continue to make strategic decisions.

What else should you consider?

Non-financial considerations will also be vital, as well as the re-introduction of your team in to the workplace. Workforce morale and overall productivity should therefore be monitored closely. Repairs, maintenance and reconnection of idle plant and machinery will also need consideration.

The considerations for business owners are extensive and will move and change due to ongoing problems which may linger due to COVID-19.

Cash management will drive focus and risk monitoring will be an increased priority as we proceed through 2020.

How can we help?

The MHA Tait Walker team have extensive experience in planning and managing cashflow and have relationships across all major funders.

Our team can also assist you with your compliance and statutory obligations, with our dedicated Tax and Business Services teams on hand to keep your records and filings up to date.

Our advisory teams can also assist with strategic planning and can offer guidance around accelerated tax planning which could prove useful with any negotiation needed with HMRC.

Contact us

Please contact Lee Humble, Corporate Finance Associate Partner for further advice.

Engineering & Manufacturing Network: Cashflow planning webinar

In this time of uncertainty, one of the biggest concerns to our business community is cash flow.

We hosted a webinar with EMN to highlight the importance of cash flow and planning. The webinar covered key areas to improve cashflow in this current COVID-19 climate, from our Corporate Finance Partner, Steve Plaskitt.

You can watch the webinar below:

Our proactive tax debt management ideas for manufacturers

Unprecedented times need unprecedented measures

From 11 March 2020, the Government have introduced a range of exceptional financial measures to assist businesses to mitigate the financial impact of COVID-19 and the associated lockdown. These measures are being applied by a range of agencies, including the banks, councils and HMRC.

The measures include:

  1. Non-domestic rates reliefs and grants provided via councils
  2. Loan finance (“CBILS”, “CFF”) provided via the banks and financial sector
  3. Support for self employed persons (“SEISS”)
  4. Financial support for employers where staff are furloughed (“CJRS”)
  5. Automatic tax deferrals, in particular VAT
  6. Further tax deferrals on request (“Time to Pay”)
  7. Recovery of Covid-19 related Statutory Sick Pay for employers <250 staff

The measures help some businesses more than others:

The measures are better for (comparatively) The measures are less helpful for (comparatively)
Employers with employees employed before 29th February 2020 Employers with employees employed after 29th February 2020
People who started a new job prior to 28th February 2020 People who are leaving a job to start another now
Self-employed who were self employed prior to 6th April 2019 Self-employed who were self-employed after 6th April 2019
Self-employed earning £49,999 Self-employed earning £50,000
Retailers where business rate reliefs are automatic Manufacturers, offices
Businesses for whom credit was previously easy to obtain Businesses where credit was not freely available
The proactive The reactive

What else should proactive businesses do?

Firstly, make sure that they take account of automatic, and “on request” tax deferrals.  Tax deferral has two main aspects at the moment, automatic and on request.

Automatic VAT payments due from 20th March to 30 June 2020
Will be payable in Q1 2021 (by 31 March 2021)

Self-assessment payments on account due in July 2020 – payable 31 January 2021
On request – via “Time to Pay”    Corporation tax payments
Other tax debts already due

Plan and act now to minimise the tax debts you owe HMRC

HMRC have made it clear this is just deferral of tax debts and they expect tax deferred will become payable when they have agreed it will become due, so in the meantime can you reduce it? HMRC can offset what they owe you against what you owe them and when you speak to them they have a view across all tax debts you owe and what they owe you.  

So for example, a corporate tax debt HMRC owes your business can be offset against a VAT debt your business owes HMRC. 

What you should be aiming to do is to reduce the debt owed to HMRC as much as possible by proactive tax management, so that you are left with as little outstanding tax debt as possible when the repayment dates approach.

So what might cause you to be in a position that HMRC owe your business corporate tax when your business owes HMRC VAT?   It is typically tax relief claims for corporate tax purposes which relate to the activities your company has been carrying out in the last two years, for example:

  1. R&D claims
  2. Capital allowances claims
  3. Enhanced Capital Allowances – this is a particularly beneficial, and overlooked, area in manufacturing
  4. R&D Allowances
  5. Land Remediation Relief
  6. Patent Box
  7. Loss reliefs (e.g. loss carry back claims or group relief claims)

These claims typically need signed accounts so this might be a reason not to put off getting your accounts done for your latest year end – maybe even accelerate them?  You should also note that any CBILS application will ask you what tax debt you have – keep a track of the tax debt (what you owe and what you are owed).

What else could your business be thinking about?

We have listed below some other things you should look at in terms of tax cashflow management:

  • Can you reduce your VAT instalments if you make payments on account for VAT purposes. You have to request this from HMRC but it is a “standard” process
  • Can you claim VAT “bad debt relief” – can you recover the output VAT on:
    • Debts which have gone bad
    • Doubtful debts more than 6 months beyond normal term
  • Is there any “international” VAT wrongly charged to your business on cross border invoices issued to you?
  • Can you reduce or reclaim corporation tax Quarterly Instalment Payments? Will an update in your forecasts now show that less tax will be due for the year? Can you ask for past paid QIPs back?  This might have to be done in writing (or web chat) but again is a standard process

Our manufacturing credentials

MHA Tait Walker work with over 150 North East manufacturers and engineering businesses across a range of disciplines.

Over the last ten years we have generated more than £45m cash from R&D claims for North East businesses. We are members of the Advanced Manufacturing Forum and the Engineering & Manufacturing Network, as well as having strong links with MAS, UKTI and iMechE.

We have a dedicated manufacturing and engineering sector team and are part of MHA’s National Manufacturing Group. We have completed over 35 Corporate Finance transactions in the manufacturing sector since 2000.

We have attached below links to some of the publications we have setting out ideas to improve your cashflow – please feel free to download copies and request details of how we can assist you.

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VAT payment deferral

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Capital Allowances

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Proactive VAT management

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Managing cash in a time of crisis

Contact us

If you have any questions, please contact us at advice@taitwalker.co.uk.