There were few immediate benefits for manufacturers in the Spring Statement, but important changes are on the horizon for R&D tax credits, capital allowances and apprenticeships.
A general summary of measures announced in the Chancellor’s Spring Statement is available here, but below are further details on some of the lesser-reported elements that affect manufacturers.
From April 2023, businesses will be able to claim R&D tax credits on cloud computing costs associated with their R&D activities, including data storage. The definition of R&D will also be expanded to include pure maths - a move expected to benefit innovation in the manufacturing sector, especially around data science and artificial intelligence.
The Spring Statement also included a commitment from the Chancellor to reform tax more widely in an effort to boost business investment in R&D, which still lags significantly behind many of the UK’s international competitors. Further announcements will be made in the 2022 Autumn Budget, with some experts predicting that tax credit rates could rise.
The UK’s existing capital allowances regime for businesses currently includes a ‘super-deduction’ tax cut, allowing companies to deduct up to 130 per cent of the cost of qualifying plant and machinery investments from taxable profits.
The super-deduction is due to end in April 2023. The replacement regime is yet to be decided, but there was a commitment in the Spring Statement to “cut and reform” taxes on capital investments to incentivise more spending on plant and machinery.
Options being explored include increasing rates of relief for Writing Down Allowances, introducing new First Year Allowances, and increasing the permanent level of the Annual Investment Allowance (normally £200,000, but currently set at £1 million until 31 March 2023). A consultation on potential reforms is expected later this year.
Training and apprenticeships
The Chancellor also committed to examining how the tax system might be reformed to encourage employers to invest in adult training for both apprentices and general staff.
Currently, UK employers spend just half the European average on training for staff. At the same time, research suggests that around 80 per cent of manufacturers are worried about skills leaving their industry.
One of the key areas being reviewed by government is the Apprenticeship Levy. The government said it “recognises that employers have frustrations” with the scheme, and will examine whether more can be done to incentivise investment in the “right kinds of training” - including high-quality formal training delivered by external providers. Further announcements are expected in the Autumn Budget.