The Budget: a manufacturing perspective

Innovation and investment were given priority in this year's Budget and translated into good news for the manufacturing sector. An increase in R&D tax credits, a further cut in corporation tax (to 20% — joint lowest in the G20) and priority given to the manufacture of ultra-low emission vehicles in the UK, will all support UK manufacturing. The new R&D expenditure 'above the line' credit scheme for large companies will help a range of industries – in particular, manufacturers. The scheme is predicted to deliver additional relief of £1.1bn to innovative companies over the next five years. Particular beneficiaries will be large companies that don't have a tax liability, as they will be entitled to cash credits for the first time, and SMEs that carry out R&D subcontract work. For many of these, when they undertake R&D to develop a component for a customer, they risk not recouping the cost – once nce in place, the payable credit will provide some protection against not reaching the production stage. Together with other measures, such as the £2.1bn boost for the aerospace industry announced the same week, and the previously announced patent box regime offering a 10% rate of tax for qualifying profits, it's a strong package of support for innovation in the UK. The chancellor also announced measures to incentivise the use and manufacture of ultra-low emission vehicles and ensure that company car tax continues to support the sustainability of public finances. These are very welcome measures and will provide a boost to the recent rapid rate of progress made by manufacturers towards producing low-emission cars. Manufacturing underpins a much broader base of economic activity, so it is pleasing to see government making targeted investments in the UK's long-term industrial future. However, manufacturers need to act: while all will enjoy the benefit of the new 20% rate of corporation tax, action is required to identify qualifying R&D spend, and active thought and planning is needed to maximise the potentially significant benefits that the patent box regime offers. Lack of clarity around the R&D rules when they were first introduced in the early 2000s meant that manufacturers were slow to take up the R&D credit – the rules are now clearer for both regimes and the sector could reap the benefits far more quickly.