Taxing challenges of recovery for UK manufacturing

With the Office for Budget Responsibility predicting the UK economy could shrink by more than a third by June, just what can the UK Government do to support manufacturing and kick-start the economy once we emerge from the current state of lockdown

09 June 2020

Sandy Findlay SMALLER

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 is echoed by UK manufacturing body MakeUK in its recent report Manufacturing Our Road to Recovery 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.

Article originally published on Manufacturing Management

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