MAY/JUNE 2020 OPINION
Taxing times
BY SANDY FINDLAY, PARTNERSHIPS DIRECTOR, ABGI UK
With the Office for Budget
Responsibility predicting
the UK economy could
shrink by more than a third
by June, just what can the government do
to support manufacturing and kick-start
the economy as we begin to emerge from
the lockdown?
While it will have a limited impact
for those manufacturers that are now
forecasting a loss in this current year of
trading, tax incentives do have a role to play.
It will be essential for HMRC to have the
resources to maintain a quick turn-around
on claims, including R&D tax relief claims,
especially for those companies requesting
a cash credit. Where this is split across the
SME and RDEC schemes, a concerted effort
is required to ensure these claims are not
held up as a result slower processing times
from the latter scheme.
HMRC could also consider introducing
a quarterly mechanism for R&D tax relief
claims to ensure cash-strapped companies
are not waiting until the end of their
financial year for cash credit payments.
Access to short-term working capital will
also be a key issue for many manufacturers
post-lockdown. Government intervention
to increase the banks’ role in offering a
wider range of working capital solutions
is crucial. This could include giving an
increased role to challenger banks as we
have already seen within the CBILs scheme.
Stimulating capital investment, another
major government challenge, could be
aided by the introduction of innovative
policy measures, modelled on the R&D tax
relief scheme, with enhanced deductions
for capital spend. This view was echoed by
manufacturing body Make UK in its recent
Manufacturing Our Road to Recovery report,
in which it suggested a Future Factory
Investment Scheme to support firms that
repurposed production to support the
COVID-19 response in reverting back to
normal operations and those seeking to
modernise their manufacturing operations.
Tiered enhancements to accelerate
investment in specific types of capital
assets – such as automated manufacturing
equipment or IT infrastructure – would
also bolster the order books of equipment
manufacturers, and improve productivity
within acquiring companies.
Similarly, a medium-term move to
create tiered expenditure enhancements
for specific types of R&D could be used
to direct the focus of UK industry’s
innovation spend.
Enhancing accessibility to grants is
another potential tool for encouraging
economic stimulus.
Given the financial impact of the
pandemic, support agencies and
government bodies will, however, need to
consider creating a cash advance facility
to cover initial expenditure that is often
required from companies to qualify for
grant funding. Alternatively, agencies
responsible for managing grant funds
could be empowered to make advanced
payments directly.
Innovate UK and all grant-awarding
bodies have an important role to play
in amplifying publicity and improving
application processes around funding to
ensure those businesses that could most
benefit are able to get access to it.
The government should also be
looking to longer-term improvements on
existing support mechanisms to ensure
public investment is fully aligned to our
industrial strategy. Companies must also
demonstrate greater commercial discipline
– subject to careful scrutiny from HMRC if
they are seeking tax relief – when investing
in innovation projects.
UK manufacturing remains innovative
through this lockdown period, with
numerous companies switching processes
to manufacture healthcare products.
Leamington Spa-based global vehicle
manufacturer Drive System Design has
also put an imaginative proposal to the
government to mobilise furloughed
engineers to create collaborative
programmes aimed at generating worldclass
IP for the UK.
The sector will, however, also need
a range of short and medium-term
government-supported financial support
tools to stimulate further innovation
activity. This will help ensure UK
manufacturers remain resilient and are
able to make the most of the raft of new
opportunities that will arise from the
post-pandemic recovery.
How are you planning your R&D spend in the future? Are you expecting government help?
We want to hear from you. Email: chris.beck@markallengroup.com
www.manufacturingmanagement.co.uk 13
Elnur/stock.adobe.com
With a shrinking economy impacting the industry during lockdown,
manufacturers should be looking to tax incentives as a means of recovery
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