Budget 2017 – What it means for the Manufacturing and Engineering Sectors
Posted On March 8, 2017 By mhauk
The most noticeable aspect of the final Spring Budget (for the foreseeable future) was the brevity and lack of new content!
At the same time, the lack of major reform also allows for a period of certainty which is welcome whilst wider economic issues take precedence. Notably, whilst there had been commentary from the government that the Budget would encourage positivity ahead of Brexit, there was little mention of the impact of Brexit, positive or negative.
Tax Measures Impacting Manufacturing Businesses
The tax related measures were mainly limited to raising taxes from the self employed and owner managed businesses, whilst softening the impact of previously announced changes to Business Rates and Stamp Duty Land Tax.
For owner managers and the self employed there were increases in Class 4 NIC and reductions in the dividend allowance. These changes can be expected to impact a large number of businesses, sole traders and the self employed. The Chancellor’s rationale in raising more tax in this way was to find the money to pay for increases in funding for Social Care and to help soften the impact of the Business Rates increases.
The Chancellor has also sought to remove any disparity in tax payable between the employed and the self employed to ensure that those opting for the so called ‘Gig Economy’ are doing so for commercial rather than tax reasons.
To one extent or another, these measures will impact owners of many businesses involved in the manufacturing and engineering sector. For example, owner managers will face increased costs in the form of higher NICs or increased income taxes on extraction of profit. At the same time, in tax terms, it will be less attractive to be a “consultant”. It remains to be seen whether we will see an increase in businesses hiring on fixed term or full time employment contracts, rather than using workers who operate as self employed or via personal service companies.
From an administrative perspective, the deferral of entry into Making Tax Digital for businesses below the VAT threshold will be helpful to a large number of the smallest businesses across the UK.
Wider Measures Impacting Manufacturing Businesses
Measures to support the Governments Industrial Strategy for which there is a current Green Paper, together with the Industrial Strategy Challenge Fund are to be welcomed.
The Chancellor also confirmed the that there will be funding to develop so called ‘T levels’ which will see an academic and vocational divide at 16, with 15 new technical education routes being made ready for launch in 2019. It remains to be seen how this will work in practice, but at least there appears to be something more than lip service to the skills shortage faced by the sector.
There is renewed focus on higher technical education alongside the Talent Funding program to fund additional phD places, and the vast majority of these places will be within STEM disciplines.
The Chancellor underlined his support for ensuring the UK leads as a centre for innovation by bringing forward simpler administration for the R&D Tax Credits mechanism, which provides funding for many companies across the UK.
Overall, this budget will have a broadly negative impact in tax terms on many businesses in the sector, but with some focus on skills, for once, the direction of travel on that score looks more positive. The Apprenticeship Levy also kicks in soon which, if it delivers what has been promised, should help to improve prospects for securing the sector’s future workforce. In conclusion, whilst there were a number of missed opportunities to encourage accelerated growth in the manufacturing and engineering sectors, perhaps we can look forward to more positives when the Chancellor presents his second budget of the year in the autumn.
If you have any questions or would like to discuss this in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Manufacturing team.