Manufacturing & Engineering Accounting

The Market

The manufacturing and engineering sectors face fierce global competition. These industry sectors face specific issues that are central to having a national competitive edge in the global market, but there are also political issues that governments must tackle, such as cheap Chinese steel saturating the global market. Within the engineering and manufacturing industry’s power, however, are some essential considerations, such as decreasing dependency on power by making energy-efficient decisions, training and recruiting an expert workforce, and, in addition, making full use of government incentives that are there to help businesses, but also to protect these industry sectors in the UK.

The UK government offers some generous incentives to the manufacturing and engineering sectors, because the innovations, prestige, and profits these industries generate are central to the UK’s economic growth as a whole, to the country’s world standing, to local economies, and to an extent the country’s security.

A variety of generous tax relief and funding opportunities are worth exploring.

Research and development

Take up of R&D tax relief and credits in the UK has improved, but many businesses in the manufacturing and engineering sectors still seem to fear that they will not qualify, and without checking whether they do or not, therefore lose out on this generous tax relief. The qualifying conditions are surprisingly wide-ranging, so is the expenditure it can cover.

Claims for R&D tax relief and credits can be made by businesses across a wide range of sectors, including manufacturing, food processing, engineering, construction, automotive, and pharmaceutical. Relief rates can be as high as 225% and, in addition, SMEs can choose to trade in their R&D losses and receive up to 25 pence for each £1 spent on qualifying R&D. What’s more, R&D capital expenditure can attract 100% allowances.

SEIS

The Seed Enterprise Investment Scheme is specifically for investors who are willing to invest in seed companies. It is a tax efficient ways to invest in small companies – from £100,000 to £1,000,000 per person per year in qualifying companies. Investors aside, what must manufacturing and engineering businesses do to be a qualifying company for investment from seed investors? You must:

• Employ less than 25 people in total;
• Must have less than £200,000 in gross assets;
• Must not be listed on a recognised stock exchange;
• Must be carrying on a “new qualifying trade”; excluded activities are listed here ;
• Trading for less than two years;
• Or be a company that hasn’t started trading, where the money raised is to be used towards R&D costs for the new trade;
• Received no previous investment from venture capitalists;
• Have not previously taken advantage of EIS;
• Meet the financial health requirements;
• Do not issue more than 30% of your company’s shares to any individual investor, and not allow any individual investor to invest more than £100,000.

Capital Allowances

The benefits of hiring an expert accountant, one that specialises in capital allowances, to review the tax relief available for a business in the manufacturing and engineering sector over the last two accounting periods cannot be over-stated.

The tax treatment of manufacturing plant is an important tax planning measure. For example, are you aware that under the UK’s capital allowances provisions some environmentally efficient technologies can qualify for a 100% writing down allowance in the year of acquisition? Did you know that for businesses making a “tax loss” the capital allowances can be surrendered for a cash rebate, and that also, if you are in receipt of R&D relief, you could qualify for such a “tax loss” rebate?

Certain energy-efficient lighting and heating qualifies for the Enhanced Capital Allowances scheme, and many items meeting recent energy-efficiency standards used in engineering and manufacturing processes can also qualify, as can certain industrial cooling and refrigeration technologies. Many engineering and manufacturing businesses do not appreciate the importance of analysing their machinery and plant assets to understand what can be classified as “qualifying” under the Enhanced Capital Allowances scheme.

If your business has recently invested in new lighting or heating, or has bought new, more efficient motor drives, or modern industrial refrigeration equipment, it might be financially beneficial to check that your assets are working for you with regard to tax as well as energy efficiency.