• Manufacturers are keen to pivot operations to focus on equipment needed to tackle Covid-19 but they need short-term funding
  • Comprehensive research into how to design and manufacture quality, long-lasting items like ventilators is key to their success
  • Government loans and sector-specific initiatives such as a new £20m innovation fund, as well as accelerated claims for tax credits, are worth reviewing

The initial response from British industry to the coronavirus crisis has been overwhelmingly positive. Manufacturers are demonstrating their ability to pivot operations quickly to meet the demand for much-needed medical supplies, including products like ventilators and personal protective equipment (PPE) for healthcare workers.

However, even for the most agile manufacturers, the challenges involved with suddenly having to produce all-new products and components at unprecedented speeds are huge, and not without setbacks. Businesses moving from hairdryers or vacuum cleaners on to ventilators are now faced with dauntingly hard tasks, like sourcing and assembling whole new sets of tools and components, and getting the necessary processes for designing, testing and commercialising new products up and running in just a few weeks.

The cost of switching to new products

Making such broad operational changes in such a short time frame may prove very costly. The UK government, through initiatives like the Coronavirus Business Interruption Loan Scheme (CBILS), is doing what it can to support manufacturers and other businesses financially. But applying for loans under schemes like CBILS is still likely to take time, and it could be several weeks before some firms begin to receive funding from the state. Inevitably, many manufacturers that are now switching to products like ventilators will have to pay for the cost of doing so themselves, at least in the short-term.

Sandy Findlay, the partnership director at tax specialists ABGI UK, says that manufacturers should be prepared for an “intensity” of R&D costs over the coming weeks. “These sorts of projects, which involve changing a manufacturing line or introducing a new product, might ordinarily take companies six months to a year,” he says. “Now companies are being asked to do it in two weeks.”

Manufacturers face a range of challenges

The myriad of design challenges facing manufacturers when they start to produce new ventilators, for example, is likely to be just as great as the engineering challenges involved. “It’s about designing products that really work, and that could include redesigning the manufacturing process itself,” says Findlay. “These ventilators will be critical life support machines. They’ll need to run 24 hours a day, some for weeks on end, so they need to be designed with components that are robust, reliable and don’t require servicing in the short-term.

Companies can apply for R&D tax credits up to two years in arrears. So, if you’ve settled your corporation tax for 2019 and 2018, and you think you’re in line for a tax credit, there could be some value in accelerating your claim

Sandy Findlay
Partnership director, ABGI UK

"There will be re-tooling challenges for many manufacturers, even if they’re already making products that are similar to ventilators or PPE. If new moulds are needed, for example, then how can they be made if the supplier who normally makes the moulds has shut their factory due to coronavirus? So, there are these really practical challenges around access to the right personnel and facilities, as well as issues of short-term funding.”

While no changes have, as yet, been made to the UK’s R&D tax credits system to encourage companies to continue innovating throughout the coronavirus crisis, Findlay says there are steps firms can take themselves to ensure they continue to have cash for ongoing R&D projects. Speeding up claims for tax credits, for example, can ensure cash is returned more quickly to companies to help finance R&D. “Companies can apply for R&D tax credits up to two years in arrears,” he adds. “So, if you’ve settled your corporation tax for 2019 and 2018, and you think you’re in line for a tax credit, there could be some value in accelerating your claim at the moment to get some of that cash back.”

According to Findlay, companies should also be on the lookout for some of the more sector-focused funds that are becoming available as the government responds to funding gaps in specific areas of the economy due to coronavirus. He cites a new £20m government fund, aimed at technology and R&D businesses developing innovations to help boost the UK’s resilience to the long-term impact of coronavirus, as an example of the type of scheme manufacturers might look at. Launched on 3 April, the scheme will make grants of up to £50,000 available to fund 100% of the projects of successful applicants.

Talk to a specialist sooner rather than later

Above all, Findlay’s advice to manufacturers switching to produce ventilators and other products related to the current crisis, is to speak to an R&D tax specialist about their options. “If you’re thinking of applying for interim funds, speak to a tax specialist now,” he says. “They can help you manage or navigate your way through current guidelines, and advise on whether to apply for funding via one government scheme versus another, or the potential impact of applying for multiple grants and loans.

“The government is launching lots of access-to-finance initiatives at the moment, but the problem for manufacturers will come in around six months’ time, when they’ll start to realise that claiming one benefit could have a negative impact on other tax reliefs. Getting the right advice now could make all the difference.”

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