Running a business in the manufacturing and engineering sectors is no small feat, especially during uncertain political and economic circumstances. To keep your business on track and thriving, you need to juggle various aspects, from understanding tax rules to securing funding and driving innovation. Below is a summary of things you need to consider and discuss with a professional advisor.
The flash UK manufacturing PMI (Purchasing Managers’ Index) was 51.3 in May 2024, up from 49.1 in April, indicating the fastest growth in manufacturing production since April 2022. This is a significant indicator of the economic trends in the manufacturing sector – in the S&P Global/CIPS PMI, a value of 50 means no change compared to the previous month, values above 50 indicate expansion, and values below 50 indicate contraction.
Additionally, input price inflation fell to its lowest level in seven months, and manufacturers’ business confidence was at its highest level since February 2022 which is positive news indeed.
With the recent change in the UK government majority to Labour, it’s crucial for directors to stay updated on new policies affecting the sector. The new government is expected to bring some changes in tax rates and introduce more green tax incentives, making it essential to keep a close watch on policy updates. A budget is expected in the autumn and there could be many changes in policy ahead.
Getting a grip on 100% expenses and write-offs
One of the big perks for manufacturing and engineering SMEs in the UK is the 100% write-off on expenses. This means you can deduct the entire cost of qualifying assets from your taxable income in the accounting period they are purchased. Th is policy, called full expensing, replaced the old super-deduction capital allowance and lets you write off 100% of the cost of qualifying plant and machinery in one go – saving you up to 25p for every £1 spent. There’s no minimum or maximum investment, so you can claim full expensing on all qualifying expenses.
Qualifying items include:
- Warehouse gear such as forklift trucks
- Tools such as ladders and drills
- Construction equipment such as bulldozers and excavators
- Machines including computers and printer
- Vehicles such as tractors, lorries, and vans
- Office equipment including chairs and desks
- Fixtures such as kitchen and bathroom fittings
- Fire alarm and security systems
- Production lines and other manufacturing equipment with relative short life spans.
Special rules apply if you acquire assets on hire purchase or finance leases. Even though you might not legally own them until the end of the contract, they’re treated as belonging to your business for tax purposes. Just remember, the interest on these purchases counts as a revenue expense and isn’t part of the capital expenditure.
Full expensing was brought in last year in April (until the end of March 2026) to get UK companies to invest more in new plant, machinery and technology. However, with the new Labour government, there might be changes in these tax breaks, so keep an eye out in the Autumn Budget for any updates.
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Securing funding and grants
Getting the right funding is crucial, especially when you’re looking to hire new talent or invest in tech. There are plenty of grants and funding options out there for SMEs, especially for skill acquisition and innovation.
You can also get tax relief when buying assets, which helps lighten the financial load. However, the application process for grants and loans can be tricky. This is where business advisors come in – they know the ropes, have the right connections, and can get you the best deals.
Additionally, consider whether you need a machinery and equipment appraisal when applying for funding new equipment. An appraisal provides a detailed evaluation of the equipment’s value and condition, which can be crucial when seeking financing. It helps lenders understand the asset’s worth, potentially leading to better loan terms and higher chances of approval.
Having an accountant on your side can also help you find lesser- known funding opportunities, ensuring you make the most of all available resources.
Making the most of research and development (R&D)
Innovation is key in the manufacturing and engineering sectors. The UK government supports R&D activities because they drive economic growth.
R&D tax relief isn’t just for new products; it also covers innovative processes. If you develop a process that’s more efficient or cost-effective than current industry standards, you might be eligible for R&D tax credits. Th is can significantly cut your tax bill, freeing up funds for other investments.
To take advantage of this, keep detailed records of your R&D activities. An accountant who knows the ins and outs of R&D claims can help you capture all qualifying expenses and ensure your claim is accurate and compliant with HMRC requirements.
Planning your finances
Managing your finances effectively goes beyond day-to-day operations. Strategic planning ensures long-term sustainability and growth. This includes:
- Cash flow management: keeping a healthy cash flow is essential. Regularly monitor your cash flow and implement strategies to manage it effectively, like optimising inventory levels and negotiating better credit terms with suppliers.
- Cost control: regularly review your expenses and find areas where you can cut costs without compromising quality. Cost-saving measures can improve your bottom line.
- Financial forecasting: develop detailed financial forecasts to plan for future growth and challenges. This helps you make informed decisions about investments, staffing and other key areas.
Going green
Sustainability is becoming more important in manufacturing and engineering. The Labour government is likely to introduce more green tax incentives, encouraging businesses to adopt environmentally friendly practices.
Investing in sustainable technologies and practices not only aligns with regulatory trends but can also boost your brand’s reputation and open up new market opportunities. Consider doing a sustainability audit to identify areas for improvement and potential cost savings.
Keeping things simple
Keeping your business healthy requires proactive financial management. Stay informed on tax policies, secure funding, leverage R&D and embrace sustainability. Accountants can provide valuable insights for long-term success so ensure they are always involved.
If tax rules seem daunting, a Tax Partner can simplify the process.
Contact Luke Prout at Cottons Group on 01604 632116, email lprout@cottonsgroup.com or for more information visit www.cottonsgroup.com
Tax Partner
Cottons Group
