Planning a flight path: What the Autumn Budget means for North West Aerospace

Mark Rathbone, head of the corporate team at purpose-led independent law firm Brabners, explores the key legal implications of the chancellor’s Autumn Budget for North West aerospace businesses

Falling at the end of October, the new Chancellor’s Autumn Budget gave businesses the most comprehensive overview yet of just how this Labour Government plans to deliver growth.

Last year’s Budget provided a great deal for North West aerospace to be excited by – not least £4.5bn of new funding to support strategic manufacturing sectors.

In contrast, the run up to this year’s event was a much more fearful affair characterised by extensive efforts to manage expectations of what will be possible given the state of the nation’s finances.

Despite this, Rachel Reeves’ speech contained a number of new policy developments for the sector to be excited by – and a selection of legislative changes to be wary of.

Growth on the agenda

Central to the speech was an ambition to drive efficiencies across the UK economy and lay the foundations for a return to growth.

This will be underpinned by a headline-grabbing change to fiscal rules that grants the Government leeway to increase borrowing, bringing the potential to release as much as £50bn in capital spend.

 

Notably, the Chancellor has already committed to grant just under £1bn (£975m) of this to the aerospace sector over the next 5 years, to fund vital research and development into the latest technology. This will be accompanied by an extra £2.9bn in defence funding.

It’s likely that we’ll see more detail on exactly how this investment will be allocated in next year’s Industrial Strategy – but as home to some of the sector’s biggest businesses as well as world-leading research bodies and educational institutions, it’s safe to assume that North West aerospace stands to benefit significantly.

While we await further detail, this post-Budget period serves as a perfect time for businesses to ensure they are well positioned to capitalise on investment once it’s released.

This will be an especially important step for those looking to make the most of opportunities presented by nascent technologies such as AI and advanced manufacturing. Moves such as reviewing regulatory compliance, ensuring a comprehensive understanding of the possibilities and risks in the adoption of such technologies and capital requirement and cash flow planning can go a long way towards granting businesses the flexibility required to adopt these technologies once funding is available.

Employment considerations

Perhaps the most controversial decision made by the Chancellor was to raise employers National Insurance Contributions (NIC) to 15%, alongside cutting the earning threshold at which businesses need to start paying the tax from £9,100 to £5,000. Plans were also announced to increase the National Living Wage by 6.7%.

This will inevitably impact cash flow and increase the cost of developing and maintaining a workforce with a real impact on the bottom line – although the impact of the NIC rise on smaller employers will be offset by steps to increase the Employment Allowance from £5,000 to £10,500.

With these changes set to come into force in April next year, we’d advise our region’s aerospace businesses to complete a comprehensive review of their HR strategies and financial outgoings now, to ensure that they have the ability to absorb these additional costs while maintaining the standards expected of them as employers and suppliers.

Capital gains

Speculation was rife around a hike to Capital Gains Tax (CGT) in the weeks leading up to the Budget, so the Chancellor’s move to increase the rate to 24% will have come of little surprise to many.

That being said, the change – which came into force instantly – could have a sharp but short-term impact on deals in the sector.

We saw a significant increase in transaction activity in the period up to the budget in anticipation of a rate rise. The fact that monthly CGT receipts for September came in at £192mn — the highest figure recorded for the month since at least 2008 – indicates that sections of the market had priced in an increase and accelerated their disposal strategies accordingly, something we definitely experienced.

However, those that missed the deadline should not remain disheartened. Business Asset Disposal Relief has remained in place. However, the changes to this valuable relief for entrepreneurs on their business sales will result in a gradual rise over the next few years (to 14% in April 2025 and to 18% in April 2026), so it’s likely to drive a busy cycle of deals completing before the next two tax years end. The end result will be a relieved tax rate that is only 2% below the full pre-budget rate and only 6% below the new full rate.

As taxes go, the capital gains regime has historically seen a lot of ups and downs, so taking stock and reassessing deal priorities is sensible.

Corporate Tax Roadmap

In a move to prevent such speculative dealmaking and restructuring in the run up to future Budgets, the Government has also published a Corporate Tax Roadmap to help provide stability and predictability for business.

While we’d advise management teams to familiarise themselves with this Roadmap as a general rule, aerospace businesses in particular will welcome confirmation that the Government intends to maintain the current R&D tax credit regime.

Established to encourage business innovation, these allow businesses to claim relief on up to 27% of eligible R&D costs. This incentivises the development of new products and technology while ensuring that small and medium research-led businesses are able to make best use of the capital they have available.

Full expensing of capital allowance will also remain an option, allowing companies to deduct 100% of the cost of qualifying plant and machinery from their taxable profits in the year of purchase. Introduced by the last Government, this move has already proven a popular and effective tool in encouraging businesses to invest in implementing new technology and processes.

With qualifying items including manufacturing machinery, security systems, process control software and more, the extension of full expensing should provide aerospace businesses of all sizes with the impetus to invest in upscaling their operations.

To continue to utilise these options, management teams must take steps to ensure that all current and future R&D activities meet the latest eligibility criteria. In particular, companies must keep any tax relief claims well-documented to ensure that they are prepared for any future audits or compliance checks.

Managing turbulence

As is often the case in the months preceding a general election, the regulatory landscape is particularly fluid at the moment as the new Government seeks to rubber stamp it’s legislative agenda.

Engaging with an expert tax advisor, legal counsel or accountant can often be the best way to navigate these changes and ensure that your business is best placed to take advantage of funding and introduce new technology and processes.

For more information on how our corporate team can support you, contact Mark.Rathbone@brabners.com.