Impact of the Spring Budget on the manufacturing sector

With a budget in an election year and an economy in recession, it was clear that the Chancellor would want to please voters, but might not have much room for manoeuvre.

Those who watched the budget with eager anticipation will have seen that there wasn’t any radical new offerings for the manufacturing sector within headline announcements, however there are a number of valuable investment packages for the sector included in the detail.

Investment measures

In line with the Government’s ambition to turn the UK into the world’s next Silicon Valley, they are backing high growth industries by making £4.5 billion available for strategic manufacturing sectors over five years to 2030.

This includes automotive, aerospace, life sciences and clean energy.

This funding includes over £2 billion for the automotive industry and £975 million for aerospace, available for five years from 2025. 

The government has confirmed that the aerospace funding announced at Autumn Statement 2023 will be allocated to the Aerospace Technology Institute (ATI) programme, which includes R&D support for small businesses through the ATI SME competition.

Also confirmed were plans for the £50 million Apprenticeship Growth Sector pilot, which will boost funding for eligible providers delivering 13 high-value apprenticeship standards in advanced manufacturing, green and life sciences sectors.

For businesses looking to unlock AI opportunities, a £7.4 million upskilling fund pilot was announced that will help SMEs develop AI skills of the future, as well as a SME Digital Adoption Taskforce, which will focus on supporting the adoption of technology by SMEs to boost their productivity.

There were also some updates to investment reliefs such as full expensing and R&D tax credits, as well as changes to the National Living Wage which employers with a workforce on the NLW will need to consider.

We have explored some of these in more detail below.

Corporation tax rates

For the financial year starting 1 April 2025, the main rate of corporation tax will remain at 25% for companies with £250k profit, and the small profits rate will stay at 19% for companies with profits up to 50k, with a tapered rate for profits in between that range.

There are no changes to the associated company rules, meaning that the upper and lower thresholds are divided by the number of associated companies, being those under common control.

Recent changes in corporation tax, income tax and national insurance have made dividends less attractive, and you should consider the most appropriate method for you.

Please get in contact with us if you would like further advice on this area.

Research & Development

The R&D scheme has provided valuable tax reliefs for businesses investing in research and development.

In the Autumn Statement it was confirmed that the current Research and Development expenditure credit (RDEC) and small and medium-sized enterprise (SME) schemes will be merged from 1 April.

This was confirmed in the spring budget, as summarised below.

For Accounting periods starting on or after 1 April 2024, a single merged RDEC scheme is being introduced (unless a claimant is R&D “Intensive”).  

However, there are some differences under the new merged RDEC scheme:

• Contracted out R&D – the company making the decision to do the R&D and bearing the risk should get the relief.
• Grants no longer reduce R&D claim value (unless you are R&D “Intensive”) – Grant funded R&D also attracts relief under RDEC.
• Restriction for expenditure on overseas R&D (delayed from 2023) takes effect  (some narrow exceptions can apply).
• Loss making company – RDEC taxed at small profits rate of 19%, taking the benefit to 16.2p for every £1 of qualifying spend.
• No nomination for R&D tax credits – all repayments are to be routed to the claimant (not an agent or lender).

Your business might be entitled to a valuable R&D tax credit and companies should explore what is available.

The recent changes, along with the increased enquiry activity from HMRC to review and check claims (which can be targeted to a particular sector or random), means that it has never been more important to ensure claims are compiled with expert advice and assistance from a regulated accountant or agent.

Extending full expensing to leased assets

As a reminder, full expensing offers 100% first-year relief to companies on qualifying new main rate plant and machinery investments. This was originally only going to be from 1 April 2023 until 31 March 2026, but from April 2024 it becomes permanent.

This is in addition to the Annual Investment Allowance.

Currently, leased assets are excluded from both full expensing and the 50% first-year allowance for special rate assets. The government will shortly publish draft legislation on which it will consult about any potential extension of these reliefs to plant and machinery for leasing.

Business rates

The empty property relief ‘reset period’ will be extended from six weeks to 13 weeks from 1 April 2024 in England. The government will also consult on a General Anti-Avoidance Rule for business rates in England.

Freeport tax reliefs

The window to claim the tax reliefs available in Freeport special tax sites will be extended from five to ten years, namely to 30 September 2031 for English Freeports and 30 September 2034 for Scottish Green Freeports and Welsh Freeports.

Deductibility of training costs

HMRC has published guidance to provide greater clarity about the tax deductibility of training costs for sole traders and the self-employed.

The guidance clarifies that updating existing skills and keeping pace with technological advancements or changes in industry practices are deductible costs when calculating the taxable profits of a business.

Interest on late paid VAT

Technical amendments, backdated to 1 January 2023, will correct the unintentionally narrow scope of the common period rules, to ensure consistent application of HMRC’s power automatically to collect overpaid VAT repayment interest.

National living wage (NLW) and national minimum wage (NMW)

Significant increases are being made to the NLW and NMW, and the NLW minimum age is lowered to 21 from April 2024.  

This means that 21 and 22 year olds will see a 12.4% increase, and someone turning 21 at the start of April 2024 would see a whopping 52.7% increase.

Whilst this is good news for employees, employers with staff earning the NLW will need to factor these additional costs into their budget.

Employers already paying slightly above the NLW might still be affected where employees expect a corresponding increase.

Contact us

If you would like advice on any of the points discussed here, please contact your Bishop Fleming advisor, or Matt Fellows, Senior Audit Manager.