Could Enhanced Capital Allowances help you reduce energy costs?

 

Rising energy costs continue to provide manufacturing and engineering businesses with a major headache.

 

Business secretary Vince Cable recently warned that rising domestic energy costs could derail a marked increase in Britain’s manufacturing activity.

 

With manufacturing output making up half of the country’s exports, but manufacturers facing energy costs as much as 30 per cent above their European rivals, it’s clearly a cause for concern.

 

However, energy prices are largely out of the control of individual manufacturers, meaning they must focus instead on factors they can control to bring costs down, such as investing in energy saving equipment.

 

To this end, the government’s Enhanced Capital Allowances (ECA) Scheme exists to enable businesses to write off the capital cost of purchasing new plant and machinery, such as boilers and motors, against their taxable profits.

 

Businesses can claim a 100 per cent first year capital allowance on investments in certain energy saving equipment against the taxable profits of the period of investment.

 

So if your business pays corporation or income tax at 23 per cent (due to drop to 21 per cent after March 2014), every £10,000 spent on qualifying equipment would reduce its tax bill in the year of purchase by £2,300.

 

In contrast, for every £10,000 spent, the generally available capital allowance for spending on plant and machinery would reduce your business’s tax bill in the year of purchase by £414. In other words, an ECA can provide a cashflow boost of £1,886 for every £10,000 it spends in the year of purchase.

 

The technology that qualifies for the ECA Scheme is listed on the Energy Technology Product List.

This acts as an incentive for businesses replacing plant and machinery to go for the greener option, as opposed to just going for the cheapest option.

 

As well as contributing to lower energy bills and better cashflow, additional benefits might include a reduction in Climate Change Levy or CRC payment.

Ginni Cooper is head of the manufacturing team at Moore and Smalley. For more information on Enhanced Capital Allowances, please contact Ginni on 01772 821021

Survey launched to gauge Lancashire’s manufacturing and engineering sector

Manufacturing and engineering companies from across Lancashire are being invited to take part in a national survey to determine the key issues, opportunities and challenges for the sector.

The survey, being conducted by North West accountancy and business advisory firm Moore and Smalley, will seek to find out more about investment and recruitment intentions, as well as opportunities and barriers to business growth.

The survey, now in its fourth year, will feed into the national MHA Manufacturing and Engineering Survey and the results will be used to identify trends, opportunities and threats and, where appropriate, put pressure on government to take more action to support manufacturers and engineers.

Moore and Smalley is the North West member of MHA, a national association of independent accountants and business advisors.

Ginni Cooper, head of the manufacturing team at Moore and Smalley, said: “Positive messages have begun to emerge with cautious expectations for growth in the manufacturing and engineering sector in 2014.

“As specialist advisers to the sector we are inviting manufacturers and engineers across the UK to take part in our annual online survey. We are especially keen that as many North West based manufacturers and engineers take part as possible so that the results show a true picture of our region across the board.”

Manufacturing and Engineering businesses can take part in the brief survey anonymously at

https://www.surveymonkey.com/s/MandS-Manufacturingsurvey2014. Those completing the survey will be entered into a prize draw to win a iPad Mini.

How can I get funding for my R&D project?

 

With applications for Round 5 of the Regional Growth Fund now closed, there remains a range of alternative routes available to manufacturing SMEs to obtain government funding for ‘revenue’ expenditure on R&D projects.

 

The Technology Strategy Board

 

The Technology Strategy Board’s SMART grants remain available to SMEs, and can be applied for on a bi-monthly basis (so a greater frequency than the RGF). The SMART grants can provide support for Proof of Market, Proof of Concept and also Prototype Development projects.

 

The Technology Strategy Board also provides a range of support to specific sectors through the use of specific grant ‘competitions’ aimed at development of new technologies in sectors which will typically include automotive, renewable, chemicals and pharmaceutical sectors. The amounts of grant funding will depend on the particular competition, but can often substantially exceed the amounts available under the SMART programme.

 

R&D Tax Reliefs and Credits

 

In addition, HMRC’s R&D Tax Reliefs and Tax Credits programme continues to provide more than £1bn of support annually to R&D carried out by UK companies of all sizes. The recent introduction of the R&D Expenditure Credit has provided a new means for companies to access additional benefit from the funds administered by HMRC, and can even be used as a way to generate additional funding for projects which have already received grant funding.

 

The number of routes for companies to obtain grant funding for their R&D expenditure may be more limited than previously, but the traditional ‘pre-RGF’ routes should now be reconsidered by any company seeking funding for R&D.

 

Ginni Cooper is head of the manufacturing team at Moore and Smalley

Autumn Statement 2013 Review: Employment Tax and Pensions

 

Most NIC rates will remain unchanged next year, although the NIC free thresholds have yet to be announced.

 

An exemption from employer’s NIC will apply to employees aged under 21, with effect from April 2014. They will still be liable to employees’ NIC.

 

The state retirement age is likely to increase to 68 by the mid 2030s and to 69 by the late 2040s, although there are no formal plans in place. The guiding principle is that we should expect to receive the state pension for one third of our adult life.

 

A new class of voluntary NICs will be introduced from October 2015. The payment of Class 3A contributions will increase the amount of additional (as opposed to basic) pension that will be paid on retirement. This will only benefit those reaching retirement age before 6 April 2016.

 

Changes are being made to the company car rules. These will require that any contribution made by the employee for the use of the car will be required to be made before the end of the tax year. The change will be made from 2014/15.

Autumn Statement 2013: Reduce energy costs for manufacturers

 

As part of our preview of Autumn Statement 2013, Ginni Cooper, corporate services director at Moore and Smalley, offers her thoughts on what government can do to help manufacturing and engineering businesses. I would tend to agree with the EEF’s recent call for the chancellor to reduce energy costs for businesses; though achieving this through scrapping green levies is always going to be controversial.

 

That said energy prices in the UK are rising much faster than elsewhere in Europe, which is squeezing margins and putting UK manufacturers at a competitive disadvantage to their counterparts on the continent.

 

Energy prices have become a politically charged issue in recent months, following Labour’s plans to force energy companies to freeze bills, David Cameron’s alleged comments about ‘cutting the green crap’, and recent price rises announced by the big energy companies. This could make it more likely that we some form of action taken to reduce energy costs.

 

Elsewhere, I’d like to see more investment announced for developing engineering and manufacturing skills. Much has been made of the trend for UK businesses re-shoring their manufacturing operations and supply chain, but for this to continue we need to have the right skills here.

 

Finally, I’d like the chancellor give a clear indication of what is going to happen with the Annual Investment Allowance post 2014. The finite window of two years for businesses to take advantage of the increase in the AIA from £25,000 to £250,000 was clearly aimed at boosting growth in the short-term, but now the recovery has taken hold we need to enable better long-term investment planning.

 

Five questions to answer before re-shoring

The trend for manufacturing businesses bringing production back to the UK has emerged strongly over the last 12 months.

 

A number of high-profile manufacturers – including Topshop, River Island, Aston Martin, Bathrooms.com and Motorola – have either already brought some production back to the UK, or have openly said they are considering it.

 

A similar trend is happening in the US market, with global firms like Apple announcing its intention to bring some Mac manufacturing jobs back from China, and General Electric which added 10,000 jobs by re-shoring some of its production in 2011.

 

This trend for re-shoring is being driven mainly by soaring transport costs and rising living standards, and hence wages, in foreign markets that have until now provided a valuable source of cheap labour.

 

The age of ‘mass customisation’ – making products to the liking of customers in different markets – has also meant companies gain more value by having factories closer to their markets and R&D facilities.

 

Other valuable benefits include better control of the manufacturing process, better lead-times, dealing with suppliers in the same time-zone who speak the same language and better relationships with customers who value a British seal of approval.

 

This is all good news for British jobs. More than half of senior UK manufacturing decision makers questioned in a survey by Business Birmingham and YouGov (July 2013) say they plan to boost production capacity in the UK in the next five years.

 

However, re-shoring isn’t a decision that should be taken lightly. There are complex issues to consider and important questions to answer first. These include:

 

What is driving my business’ need for re-shoring?

 

It’s important to review the reasons for the decision to off-shore in the first place. Was this merely driven by labour costs, or were other factors, such as logistics, inventory levels, quality, exchange rates and responsiveness, also playing a role in the decision. Answering these questions again will give you clarity on exactly why you feel the need to re-shore. It may even be the case that those original reasons for outsourcing still hold true, but a bad supplier experience has put doubt in your mind. Finding a different supplier may be a better solution than re-shoring.

 

Will our circumstances changes again in the future?

 

It’s quite possible that the factors that have changed since the original outsourcing decision was made could reverse again in the near future. Re-shoring may bring production closer to existing markets, but does it move it further away from new emerging markets.

 

Do the right skills still exist in the domestic market?

 

Large scale off-shoring means many skilled jobs have been lost to lower cost overseas markets. Consequently, there are potential skills and knowledge gaps in many areas of the UK. Any decision to bring production back should consider whether you can pick a supplier that has the right skills to meet the needs of your business. Can the supplier handle the product and knowledge transfer process?

 

How can I ensure a successful transfer?

 

What contingency plans can be put in place with the new supplier to ensure a successful transfer, particularly in light of the potential for having an incumbent supplier who becomes uncooperative because they’re losing the contract. Ask yourself how continuity of supply can be guaranteed, perhaps through building up stock inventory to cover the transfer period, particularly if important equipment has to be moved, or whether there will need to be some parallel production.

 

What are the longer term commercial and contractual issues?

 

Re-shoring needs a robust strategic plan attached to it that looks at the long term, not just the fluctuating short-term conditions. The risks attached to re-shoring are equal to, if not greater, than those of off-shoring, so it requires significant time, effort and resource. Consider carefully the financial, legal and logistical implications.

 

Ginni Cooper is head of the manufacturing team at Moore and Smalley, for more information please call 01772 821021

 

Five tips to help manufacturers stay focused during the upturn

 

A recent slew of positive data would suggest that the UK’s economic recovery is well underway.

 

– UK GDP figures for Q2 showed growth of 0.6 percent.

 

– Figures from the Office of National Statistics (ONS) showed that manufacturing output in June grew at its strongest pace since the end of 2010.

 

– Retail sales enjoyed their fastest July growth in seven years, according to the British Retail Consortium.

 

– UK car sales enjoyed another strong month in July, according to the Society of Motor Manufacturers and Traders, with a total of 162,228 new cars registered in the month, up 12.7% on a year earlier.

 

– A Purchasing Managers’ Index (PMI) survey indicated that the UK service sector expanded last month at its fastest pace since December 2006.

 

– The PMI survey for the construction sector suggested it was growing at its fastest pace for three years.

 

With so much good economic news around, manufacturers could be forgiven for getting a little carried away.

 

Our advice throughout the downturn has been that owners and managers should base their business and investment decisions on what their own management information is telling them and on conditions in their own particular sector, rather than getting distracted by the macro-economics.

 

The same advice applies for the upturn. While short-term opportunities can be exploited, growth and innovation must continue to be based on long-term business planning and strategy.  Here are some top tips to help manufacturers stay grounded during the recovery:

 

Don’t let good habits go out of the window: Continue to keep a close eye on costs and budgets.  Make sure you are producing 13-week cashflow projections and basing decisions on up-to-date management information. In short, maintain discipline with financial controls and practice robust debtor management.

 

Stay true to your business plan: Upturns present new opportunities. Of course, the potential of these should be explored and exploited where relevant, but don’t let this throw you of course. Remember your business plan and stick to your strategic objectives.

 

Make the most of available tax reliefs: Changes to capital allowances rules and generous R&D tax relief make it a good time to make investments in new products, plant and machinery. Speak to your professional advisors to ensure you are making the most of these opportunities.

 

Avoid the perils of overtrading: Overtrading happens when new orders you take on are out of synch with your capacity to do the work. It’s a common ailment during an upturn and can potentially derail your business if not properly managed. My previous blog on this subject offers tips for avoiding overtrading.

 

Take advantage of available business support: Just because your business is growing again, doesn’t mean you shouldn’t take advantage of business support funding that could help you prosper in the long term. I’m not just talking about grants, but funded support programmes that can help with innovation, leadership skills and mentoring. Again speak to your advisors to see what’s available in your area.

 

Ginni Cooper is head of the manufacturing team at Moore and Smalley, if you would like more information on this  topic please call 01772 821021.

A guide to successful exporting

Moore and Smalley is coming across more and more businesses that have spotted opportunities to expand by exporting.  In a special report put together for our business magazine ‘Bottomline’, we put some key questions to international trade expert Clive Drinkwater, North West regional director at UK Trade & Investment.

 

How important is the export trade to the UK and how do North West businesses contribute?

 

The government has identified exporting as a vitally important factor to help the country grow out of recession. As part of National Challenge, a major initiative is to boost the number of SMEs entering the export market – from current levels of around 20 per cent to at least 25 per cent. By increasing the number of companies that export by roughly a quarter, about £36 billion could be added to the UK economy.

 

The North West is the biggest exporter in the UK outside of London and the South East, so we have a critical role.

 

What are the main benefits to exporting?

 

First of all, the UK has less than one per cent of the world’s population, so if you only sell here then you are limiting yourself to less than one in 100 customers.  Furthermore, research suggests that companies that export also perform better domestically, and are more resilient. There is a battery of statistics showing that firms  increase their productivity by an average of 34 per cent in the first year of exporting and  that firms that export are 12 per cent more likely to survive through difficult times.

 

There are also benefits to spreading your risk – if one market dips another can take up the slack.

 

Revenues are generally higher in export markets and you will dramatically improve your credibility by competing against the best the world has to offer.

 

How does UKTI support experienced and new exporters?

 

Our team of experienced international trade advisers visit companies to provide free practical help and advice. If you’re new to international trade, we’ll sit with you and look at your business to assess whether you’re ready to begin the export journey.  If you are, we’ll explain what you need to do, and offer support, such as market research, export training and help to visit target markets.

 

Some of these companies join our Passport to Export programme, with £3,000 of matched funding to help them implement an export business plan. Experienced exporters also make good use of our services when they’re looking to expand into new markets, for example by commissioning bespoke research carried out by our staff overseas.

 

Where are the best countries to start for new exporters?

 

It depends on your product or service, of course, but for most new exporters the nearby EU markets are the obvious place to start. The Republic of Ireland, for example, might be small in population terms, but is the North West’s fifth biggest export market, and our companies are very well received there.

 

Where are the main growth export markets for more seasoned exporters?

 

Europe and the US will always be hugely important markets for our companies, but real future growth will come from the BRIC markets (Brazil, Russia, India and China).  China is already the North West’s third biggest market, so we’re well placed to take advantage of this shift in world economic power. I’m also pioneering a brand new acronym of my own; MIST, representing Mexico, Indonesia, South Korea and Turkey. Before long, these BRIC and MIST countries will account for around one third of the world’s GDP, and nearly half of its population.

 

Anything else potential exporters should know about?

 

Exporting is addictive. You meet people from all over the world, visit fascinating places, test yourself against the best, and learn how business culture differs around the world.

 

You’ll also have a lot of fun along the way.  In my experience, British companies are highly regarded around the world, but overseas customers want us to be more visible – to visit and engage on a regular basis. Yes, like any other aspect of business, exporting can have its pitfalls, but there’s a lot of support available to help you get it right and, when you do, it’s great for your business and very rewarding personally.

 

Moore and Smalley has close partnerships with a number of international trade bodies and intermediaries who can help businesses capitalise on export opportunities.  For further information, call us on 01772 821021 or send an email to info@mooreandsmalley.co.uk.

 

Top six tips for avoiding the pitfalls of trading abroad

 

The export market can be highly profitable for manufacturing businesses – but there are pitfalls for first-time exporters. Here are some tips on how they can be avoided.

 

1. Carry out thorough research to identify prospective markets – but beware of spreading your resources too thinly. Decide on a single country that best suits your business and take one market at a time.

 

2. Managing cashflow is especially important for exporters. Lengthy transit times and extended credit terms can pressurise your finances. Ask your bank about letters of credit and invoice finance, which generates immediate funding through your sales ledger.

 

3. Failing to address legal and compliance issues can result in major costs and lost trading opportunities. Speak to a commercial law firm about how best to handle import restrictions, regulatory issues and sales contracts.

 

4. Find out whether you can sell your product as it is, or if modifications are needed to make it acceptable to different cultures and regulations. This means looking into packaging, labelling, quality and safety standards.

 

5. Don’t fail because of ignorance. Taking a first-hand look gives you a valuable feel for market conditions on the ground, so factor in a travel budget. You may need to fly out more than once to establish an effective trading presence.

 

6. Take the time to get your paperwork right. The Export Control Organisation (ECO) has to return half of all export licence applications, either for more information or because the application has been incorrectly completed.

 

Ginni Cooper is head of the manufacturing team at Moore and Smalley and is available to discuss this matter further on 01772 821021.

Six tips to avoid overtrading as the economy recovers

 

Rising optimism that the long-awaited recovery could be around the corner may result in some businesses overreaching themselves – and ending up with serious cashflow problems.

 

Overtrading happens when new orders you take on are out of synch with your capacity to do the work. It’s a common ailment that can potentially derail your business if not properly managed.

 

Issues around overtrading happen when your current assets or working capital are insufficient to bridge the gap between funding new work and getting paid for invoices you have already issued.

 

Overtrading is particularly common among young manufacturing businesses that have capital intensive manufacturing methods and the need to invest heavily in raw materials.

 

It also affects fast-growing businesses that are chasing new work but haven’t developed a financial management system that is synchronised with the payment cycle.

 

Here are six useful tips for avoiding overtrading:

 

1. Produce a 13 week cash projection to identify weaknesses in your cash flow. This should reflect best, worst and medium-case scenarios

 

2. Speak to your suppliers about renegotiating credit terms so you pay them after you get paid by your customers

 

3. Take a careful look at your credit control systems. Set out straightforward payment terms for customers and chase invoices immediately they become overdue

 

4. Arrange staged payments or deposits for your products or services

 

5. Be prepared for seasonal fluctuations in sales and ensure budgets reflect this

 

6. Manage your stock control so that you aren’t carrying excess stock that ties up your working capital. If necessary, have a system in place for selling unsold stock and free up working capital.

 

Invoice discounting is an effective antidote to overtrading. It involves borrowing cash against your invoices, while staying in control of debt recovery. Factoring is a similar funding stream, but involves the fund provider recovering your customer’s debts.

 

If you think your business is in danger of overtrading, speak to your professional advisors as soon as possible. Signs that this could be happening include slipping of your payment terms, having to pay your suppliers late as a result and a constant need to access your business’ overdraft facility.