Government tools required for manufacturing-led recovery

The introduction of innovative policy measures, modelled on the R&D tax relief scheme, with enhanced deductions for capital spend offers one effective way forward.

17 July 2020

Sandy Findlay SMALLER

The 20.4% decline in the UK’s GDP reported by the Office for National Statistics in April, the largest fall in a single month since records began, combined with and the OECD’s prediction of 11.5% decline in our annual GDP for 2020, the largest of any developed economy due to Covid-19, underlines the scale of the challenge in recovering from this devastating pandemic. So what can the UK Government do to support manufacturing and help revive the economy as restrictions are eased?

The introduction of innovative policy measures, modelled on the R&D tax relief scheme, with enhanced deductions for capital spend offers one effective way forward.

This approach echoes the view of MakeUK’s recent Manufacturing Our Road to Recovery report. It calls for a Future Factory Investment Scheme to support manufacturers which repurposed production to support the Covid-19 response to revert back to normal operations as well as those which are seeking to modernise their operations.

With an already gloomy economic outlook that is further threatened by the prospect of a No Deal Brexit at the end of the year, the UK Government will need to pull out the stops to support manufacturing to help kick-start the economy.

While it will have a limited impact for those manufacturers that are now forecasting a loss in this current year of trading, tax incentives could help. HMRC will, however, require resources to maintain a quick turn-around on claims, including R&D tax relief claims, especially for those companies requesting a cash credit. Fortunately, to date it seems this has been the case and most companies and providers are reporting very little delay in processing and settling claims.

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. While this could be resource-intensive, HMRC has been laying the foundations and paving the way for such a move over the last few years through its ‘Making Tax Digital’ initiative.

Article originally published on Make UK

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