As advisors to manufacturing companies Holmes & Hills can sometimes be asked for advice on a wide range of issues linked to matters we are assisting with, but not necessarily legal. These questions sometimes stray into the field of tax. Whilst we are experts in the law, we are not experts in corporate tax affairs and so here is a helpful article from Rickard Luckin Chartered Accountants and Tax Advisors providing a brief overview of some tax issues impacting manufacturing companies and broadly related to some projects we work with manufacturing companies on, such as intellectual property, purchase contracts and agreements, as well as issues concerning employees, to name just a few.
Article by Paul Forster, Director at Rickard Luckin.
Despite the negative press it sometimes gets manufacturing remains a key industry in the UK. The UK is still the eleventh largest manufacturing location in the world and the industry employs almost three million people and contributes approximately half of our exports.
The manufacturing industry is a key sector for Rickard Luckin and we provide proactive solutions to our clients in the industry through our sector specific tax, audit, accounting and business advice providing assistance in relation to patent box, research and development claims and the tax issues relating to international trade. Our corporate finance team assist manufacturers in acquiring and selling businesses as well as raising finance.
From a tax perspective the following issues are of particular relevance for manufacturers:
1) If a company has patented part of the technology used in its products it may be eligible to elect into the ‘patent box’ regime. The effect of this can be to reduce the effective corporation tax rate on profits attributable to such products from the normal 19% to 10%.
2) If a company is carrying out research and development (R&D) then it may be entitled to enhanced tax relief on the costs it incurs on R&D. Many companies fail to recognise when they have the opportunity to claim the relief which is given at 230% of the eligible expenditure for SMEs. Common misconceptions are:
The eligible costs on which the enhanced relief can be claimed include the company’s own staff costs, subcontractors and consumables. Loss making companies who cannot set off the relief against taxable profits can obtain a payment from HMRC of 14.5% of the enhanced eligible expenditure.
4) Businesses incurring expenditure on machinery are eligible for capital allowances. While the first £200,000 of expenditure each year will obtain 100% relief under the Annual Investment Allowance (AIA) the excess only gets relief at 18%. However, where equipment is on the Energy Technology Product (ETP) list published by the Carbon Trust it will qualify for 100% relief under the enhanced capital allowances scheme even if the AIA has been fully utilised. The ETP list details energy-efficient plant and machinery that qualify for full tax relief.
Businesses manufacturing such plant and machinery should consider getting their products included on the list to enhance its attractiveness to purchasers.
5) Businesses with an annual payroll of £3,000,000 and above are required to pay an apprentice levy of 0.5% of the excess over £3,000,000. Those paying the levy can access it via an online digital apprenticeship service account which receives a top up of 10% from the government. However, smaller businesses that are not subject to the levy are also able to access the digital apprentice service through a ‘co-investment’ service where they pay 10% towards the cost of the apprenticeship training with the government paying the remaining 90% subject to certain funding limits.
We are always delighted to talk to businesses about the opportunities available to them and if you would like to know more about our services to the manufacturing sector please contact Paul Forster by e-mail at paul.forster@rickardluckin.co.uk or on 01245 254201.
A Mackman Group collaboration - market research by Mackman Research | website design by Mackman
