What does the Budget mean for manufacturing businesses?

The Government’s November Budget introduced a number of policies that will help shape the future of the manufacturing sector.

Business owners will be relieved that the Chancellor did not make further changes to corporation tax headline rates or employers’ national insurance contributions percentage, but can take advantage of the following measures introduced before other tax increases are brought in.

Capital allowances

The government has maintained the 100% full expensing first-year allowance when investing in qualifying plant and machinery, and made no changes to the annual investment allowance with the aim of encouraging investment. However, a reduction in the writing down allowance for the main pool from 18% to 14% from April 2026 will affect the corporation tax charges of those with older assets.

Those who utilise group structures where assets are leased to a trading company can benefit from a new 40% first-year allowance for main pool additions.

Changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)

Funding for expansion can be a challenge and so from April 2026 there will be an increase in several key eligibility limits under both the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) regime as part of a wider push to stimulate investment in growing UK businesses.

The increased limits are designed to make the schemes more useful for growth-stage and scale-up businesses, particularly those in capital-intensive sectors such as manufacturing.

At the same time, there is a notable shift on the investor side. The rate of upfront Income Tax relief for VCT investors will be reduced from 30% to 20%. While the structural benefits of VCTs remain, including tax-free dividends and tax-free disposal of shares, this reduction lowers the initial incentive for individuals investing in VCTs. This may influence investor behaviour and could impact fundraising for VCTs in the short term, even as the underlying company-side limits become more generous.

Overall, the reforms represent a rebalancing: more headroom for companies to raise growth capital, with a slightly less generous incentive for VCT investors. For ambitious UK businesses seeking expansion funding, the widened thresholds may prove highly valuable, particularly when combined with other Budget measures aimed at supporting investment and long-term growth.

Expansion of the Enterprise Management Incentives (EMI) scheme

Great companies require great people and from 6 April 2026, the UK government will substantially expand the eligibility and capacity of the EMI scheme. Under the new rules (for EMI contracts granted on or after that date), the total value of EMI options a company may have outstanding will increase from £3 million to £6 million. Simultaneously, the thresholds defining which companies qualify for EMI will be relaxed: the gross-assets test will rise from £30 million to £120 million, and the employee headcount limit from 250 to 500 full-time equivalent employees.

In addition, the exercise period (the maximum time during which an option can be exercised) will be extended from 10 years to 15 years. Crucially, companies may extend the exercise period of existing unexercised EMI options (those granted before the change) without losing their tax-advantaged status, provided that the relevant documentation is amended in line with the legislation.

All other EMI qualifying conditions remain in force, and these changes will offer greater access to EMI schemes to scale-up companies, rather than just start-ups, and with more room to incentivise staff.

Salary sacrifice for pension contributions

From April 2029, there will be a £2,000 limit on employees paying pension contributions under salary sacrifice arrangements. This will lead to additional national insurance being paid by the employee and employer on contributions above £2,000 per year. The hope would be that investment now into machinery assisted by the capital expenditure reliefs supported by continuous improvement mindsets will lead to further margin growth offsetting the rise in taxes.

Tax changes for the business owners

With changes to the tax relief on exiting a business to an Employee Ownership Trust (EOT), an increase to dividend tax and alterations to charges on electric vehicles, there is much for manufacturing businesses owners to digest as they consider their own remuneration strategy and potential options when it comes to succession or exit.

If the Budget has raised any questions for you, or if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.