By Steve Rees, Managing Director, Carpenter Rees, a UK financial services consultancy for SMEs and family businesses.
The UK economy may be in recovery, but many small manufacturers are still struggling to generate enough funds to expand their business, or capitalise on new opportunities in the market.
In recent years, many SMEs don’t feel that they’ve seen the level of encouragement necessary to help them reap the rewards of the improving economic climate. However, with family businesses providing nine million jobs and making up 70 per cent of all UK manufacturing firms, development in this sector is vital for the country’s continuing revival.
There are a variety of growth incentives for SME manufacturers in 2014. Corporation tax has dropped from 23 to 21 per cent. This reduction will be a major relief for business owners and will free up revenue that can be invested in upgrading their manufacturing facilities. Additionally, the unification of corporation tax rates at 20 per cent from 1 April 2015 will subject a majority of companies to a single rate, simplifying and reducing SME tax burdens.
Taking advantage of the business rate discounts that will be extended for enterprise zones for the next three years could also be an invaluable move for small businesses. This reduction was recently announced by the Government to release revenue for businesses, as part of its push for a more resilient economy.
For companies focused on buying equipment or machinery, it’s worth making the most of the current Annual Investment Allowance. This allowance, which has recently been increased to £500,000, will allow businesses to receive tax relief on purchases. The tax relief scheme has been extended until April 2015 in a welcome move that will help to reduce financial strain on the very SME manufacturers that are actively fuelling growth of the UK economy.
In some instances, it may be possible for small businesses to borrow money from their pension fund to help fund capital equipment purchases. In addition to being both quicker – and probably easier – to set up, paying interest to a pension fund is usually a better option for manufacturers than the bank.
Recent pension reforms will make them a more acceptable savings vehicle for owner-managers of family businesses, as well as SME’s. Plus, certain options – like the Small Self-Administered Pension Scheme – can make use of funds within the arrangement to create affordable business loans and help purchase company premises.
Another measure which comes in to effect in early April is the Employment Allowance. First unveiled in 2013, the initiative will cut £2,000 from the National Insurance bill of all companies – significantly benefitting small businesses with fewer than 50 employees. These savings will free up capital that can be invested back into the company, or used to increase the size of a manufacturer’s workforce. According to UK Trade and Investment, the Employment Allowance will mean that SMEs will be able to employ four adults or 10 18-to-20-year-olds full-time on the national minimum wage, without paying any National Insurance contributions.
With small businesses becoming increasingly important in helping to drive the UK economy, it is essential that SME manufacturers take advantage of the newest government schemes and tax incentives to generate revenue and ensure their continuing growth. The combination of corporate tax relief, pension reform and Employment Allowance will alleviate some of the financial pressures on small businesses and, in turn, should allow them meet growing market demand.