The specialist investor wants scope of tax relief to be widened to include business development costs to support manufacturers to create new products

Specialist private equity fund Elaghmore has called on the Government to support small UK manufacturers by widening the scope of R&D tax relief to include business development costs. Focused on investment in small to mid-cap UK industrial companies, Elaghmore believes that UK manufacturing SMEs will need help to develop new products and find new markets if they are to survive.

The current R&D reliefs support companies that work on innovative projects in science and technology, even unsuccessful ones. SMEs can deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction. A tax credit can be claimed, if the company is loss making, worth up to 14.5% of the surrenderable loss.  Extending the relief to cover the costs of commercialising the project, to sell and market it to new customers, will help SMEs. Smaller companies typically lack the resources and expertise in business development.

Small manufacturers need help. The COVID crisis has had a significant impact with a significant number of factories and other facilities forced to mothball.  Large engineering companies like Rolls-Royce or major construction groups, that provide work for thousands of smaller UK manufacturers have cutback.  The subsequent loss of orders will have a substantial negative impact on the sector.  According to the UK Government, in 2018 manufacturing in the UK accounted for 2.7 million jobs, £191 billion of economic output, or 10% of the UK total, and 42% of UK exports, worth £275 billion. 

Commenting on the need for tax reform, Elaghmore co-Founder, Andy Ducker, said: “By extending the R&D tax relief to include business development, UK manufacturers can confidently invest time and money in developing new products and finding new customers. What the Government loses in tax, it will more than save in universal credit. For the UK to succeed post-COVID and Brexit, we need a strong manufacturing base, and SMEs are vital to that.

“Without help small, specialist manufacturers are going to struggle after this crisis.  With their traditional customers pulling back, they need to find new customers across the UK and abroad. Developing new products and getting the right people into business development and marketing roles is key to this.  Adopting this approach is one of the things that we help our portfolio companies do, but it needs to happen across the whole sector.”

Founded by Andy Ducker and David Manning, Elaghmore has considerable experience in the UK industrial sector.  In late 2016, Elaghmore closed the oversubscribed £60 million Elaghmore I LP fund, with investment from significant institutions in the US and Europe.   It owns the following:

• Kesslers – one of Europe’s leading designers and manufacturers of retail displays and merchandising
• Gardners – one of Europe’s leading designers and manufacturers of large format visual display

Elaghmore has also acquired and brought together three of the UK’s leading specialist manufacturing firms that deliver solutions for the commercial and industrial vehicle industry, to create the Total Vehicle Solutions (“TVS”) Group. This includes:

• Priden Engineering – one of the UK’s foremost engineering companies
• McPhee Mixers – a major UK manufacturer of concrete mixer units
• SB Components – a leading supplier of bespoke components for commercial vehicles

Furthermore, Elaghmore has acquired: 

• Alucraft Group – Ireland’s leading designer, manufacturer and installer of architectural glazing
• English Architectural Glazing (EAG) – a facade and cladding contractor based in Rotherham