Tax Guide for the Manufacturing Industry

Running a manufacturing business in Bolton, Manchester, or anywhere across the UK comes with unique tax challenges and opportunities. From claiming relief on expensive machinery to recovering costs for developing new products, understanding the tax landscape can save your business thousands. This guide explains the key tax reliefs available to UK manufacturers in simple terms.

Capital Allowances: Get Tax Relief on Equipment

When you buy machinery or equipment, you claim capital allowances tax relief that helps businesses invest in growth.

Annual Investment Allowance (AIA) lets you write off up to £1 million of qualifying equipment each year, covering most plant and machinery, production equipment, computers, and vans. For most manufacturers, this covers all annual capital spending.

Full Expensing allows limited companies to deduct 100% of the cost of new main-rate plant and machinery immediately with no upper limit. However, it doesn't apply to second-hand equipment.

From January 2026, a new 40% First-Year Allowance applies to qualifying expenditure not covered by full expensing or AIA, particularly benefiting sole traders and partnerships. Note that from April 2026, the standard writing-down allowance rate reduces from 18% to 14%.

R&D Tax Relief: Claim for Innovation

If your manufacturing business develops new products, improves processes, or overcomes technical challenges, you may qualify for Research and Development tax relief.

From April 2024, the merged R&D scheme offers a 20% tax credit on qualifying expenditure, delivering an effective benefit of around 15-16% after corporation tax. Activities must seek to advance science or technology by resolving technical uncertainties such as developing new production methods, creating innovative materials, or overcoming engineering challenges.

R&D Intensive Support (ERIS) provides enhanced relief of up to 27% for loss-making SMEs where R&D spending represents at least 30% of total expenditure.

Important: First-time claimants must notify HMRC within six months of their accounting period end. Claims require detailed technical reports explaining the uncertainties faced and how you attempted to resolve them.

Patent Box: Pay Just 10% Tax on Patented Innovations

If your business generates income from UK-registered patents, the Patent Box allows you to pay corporation tax at just 10% on those profits instead of the standard 25% rate. You must hold or license the patent and demonstrate how profits link to the patented technology.

VAT Considerations for Manufacturers

Most manufacturing involves standard-rated VAT at 20%. Exporting goods outside the UK is typically zero-rated, allowing you to reclaim input VAT whilst charging no VAT to overseas customers. Importing triggers import VAT, which you reclaim through your VAT return.

The VAT Flat Rate Scheme simplifies accounting for smaller manufacturers with turnover under £150,000, though it doesn't always save money compared to standard accounting.

Corporation Tax Planning

Manufacturing businesses pay corporation tax at 25% for profits over £250,000, with a small profits rate of 19% for profits up to £50,000.

Strategic planning reduces your liability: maximize pension contributions for yourself and employees, time capital expenditure to claim full expensing or AIA for immediate tax savings and ensure all legitimate business expenses are claimed including subscriptions, training, and professional fees.

Why Specialist Manufacturing Accountants Matter

Tax reliefs for manufacturers have grown increasingly complex. Getting R&D claims right requires technical knowledge and detailed documentation. Capital allowances need careful planning to maximize relief. Combining multiple reliefs whilst maintaining HMRC compliance demands specialist expertise.

At YRF Accountants, our team understands the unique challenges facing UK manufacturers. We help businesses across Bolton, Manchester, and the wider UK identify every available relief, prepare robust R&D claims, optimize capital allowances, and plan strategically to minimize tax whilst funding growth.

Ready to reduce your manufacturing tax bill? Contact YRF Accountants today for a comprehensive tax review. Our experienced team will identify opportunities you're missing, ensure full compliance, and provide clear guidance on maximizing relief whilst investing in your business's future.