Tax breaks mean substantial savings for manufacturers


In the second of a series of blogs looking at the manufacturing sector, Moore and Smalley’s Ginni Cooper outlines some of the tax breaks manufacturers can take advantage of.


Businesses should make the most of the government’s decision to increase the annual investment allowance (AIA) as well as generous tax breaks under the research and development (R&D) tax credits scheme.


AIA in a nutshell


The AIA is a capital allowance that gives tax relief at 100 per cent on qualifying expenditure in the year of purchase. It enables businesses to deduct up to £250,000 from their taxable profits.


The increase to the AIA represents an opportunity for businesses to invest tax efficiently, giving them the chance to save up to 50p in taxable profits for every £1 they invest in new equipment.


You are eligible for AIA if your business activity includes: trading; commercial property letting; office or employment; or leasing.


Companies with a group structure need to consider tax planning options to determine the most effective way of dividing the allowance between businesses. Also, assets such as cars do not qualify.


Investment in sustainable technology is eligible for enhanced capital allowances (ECAs), which are on top of the £250,000 allowance. As with the AIA, 100 per cent tax relief is available in the first year.


What you need to know about R&D tax relief


Research and development (R&D) tax relief and credits is a government incentive to encourage firms to invest in R&D.


Claims can be made by businesses across a wide range of sectors including: manufacturing; food processing; engineering; construction; automotive; and pharmaceutical.


R&D need not be technology-based and includes a raft of business activity. For example, if you are a food producer, investing in the development of an ingredient to extend the shelf-life of a product constitutes R&D activity.


Relief rates are as high as 225 per cent for claims after 1 April 2012. In addition, SMEs may choose to trade in their R&D losses and receive up to 25p for each £1 spent on qualifying R&D. 100 per cent allowances are also available on R&D capital expenditure.


For more information, contact Ginni Cooper on 01772 821021