Budget delivers mixed blessings for manufacturers

Solicitors Thomas Eggar LLP look at the impact of the budget on the industry

Following political noises which suggested that the manufacturing industry would be at the heart of the economic recovery, there was some good news for the industry in Tuesday’s budget announcements. The good news is that the enhanced tax relief for expenditure on R&D announced in the pre-budget report is to go ahead as planned. With experts tipping innovation as the key to the UK’s recovery, this tax relief for SMEs on R&D and intellectual property is a welcome move, and will cover a broad spectrum of the industry for organisations up to 500 employees and a turnover of €100m. Furthermore, reductions in Corporation Tax over the coming years should ensure continuing prosperity for growing organisations, and entrepreneurs within the sector have welcomed the increase in the lifetime limit of tax relief to £5m from June 2010. However, it wasn’t all good news; employers’ National Insurance contributions are set to rise, and for companies with shareholders, the increase in capital gains tax will have an impact on income and therefore shareholder value. The changes to capital allowances do counterbalance the support for R&D, with writing-down allowances cut by 2% and a more drastic cut from £100,000 to £25,000 for the maximum annual investment allowance. Furthermore, the increased VAT rate to 20% could have an indirect impact on how competitive organisations can be in the sale of their goods. Caroline Armitage, Head of Manufacturing for Thomas Eggar LLP stated: “There was a lot to celebrate in this budget, and the Government appears to have nailed its colours to the mast in supporting the manufacturing industry. The overall aim of the budget has been to introduce a more simplified system which ensures that there is less tax avoidance, and the changes do leave manufacturing organisations vulnerable to compliance issues as they accommodate those changes. Our aim over the coming months will be to support our clients in ensuring that they’re gaining the maximum benefit from these measures which have been delivered to provide ongoing growth across the sector, and to ensure that as they develop in areas such as R&D, their intellectual property is well protected in order to ensure that it delivers the expected returns.” ENDS 357 WORDS

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