Spring Budget 2021 – tech and innovation to lead British economy towards a rapid recovery
What are the key messages innovative businesses should take from this week’s Budget speech?
All good news overall, but no game changers.
It doesn’t come as a surprise that navigating the UK economy through the final months (so we all hope) of the pandemic, and towards the full recovery in 2022, was the utmost focus of this week’s Budget.
The Government has confirmed its strong commitment to invest in science and technology, recognising that innovation is an essential building block for the ‘Build Back Better’ plan.
What was said about business taxes? A ‘give and take’.
5th March 2021
The capital allowances super deduction and extension of loss carry-back relief will boost businesses’ cash flows and capital investment, which the Government hopes will stimulate growth over the next two years. However, these temporary ‘hand outs’ (and some) will be reclaimed back by the Government from 2023 through the proposed increase in the main corporation tax rate to 25%. Whilst the UK will still have the lowest corporation tax rate in the G7, this is not the same as having the lowest overall tax base.
The preannounced cap on payable R&D tax credits available under the SME R&D scheme will go ahead and take effect from 1 April 2021. Whilst there is no restriction on actually making an R&D claim and using that to reduce a corporation tax bill or to generate losses to carry back or carry forward, the cap applies to the payment HMRC make for the surrender of losses.
The cap is calculated as £20,000, plus three times a company’s total PAYE and NICs liability. Therefore, companies which wholly outsource their R&D will, under this new rule, only be able to claim £20,000 in payable R&D tax credits, per year, from HMRC. Companies may be able to escape this restriction if their employees create or manage IP.
Please get in touch if you are likely to be impacted by this change and would like guidance on how to manage or minimise the restriction.
To ensure global competitiveness, the Government will launch a new consultation on the R&D tax regimes, which will be looking at definitions, eligibility, and scope of the reliefs, to ensure they are competitive, well targeted to stimulate the UK economy, and reflective of modern R&D practices.
The Government will also consider bringing data and cloud computing costs into the scope of R&D relief on the back of another R&D tax relief consultation carried out last year.
A word of warning though. The consultation raises a number of questions concerning the quality of R&D tax advice being received by companies from some unregulated specialist advisers and hence the legitimacy of some of the claims being made.
We know that this is an issue very much on the radar of HMRC who are recruiting additional staff in order to scrutinise more claims and police this area more effectively. Many taxpayers mistakenly believe that if HMRC pay out a tax repayment then they have accepted the claim. This is not the case – in certain circumstances they can have up to six years to revisit and reject a claim. This could have catastrophic effects on a business.
The overall message would appear to be a positive one though – that companies carrying out genuine R&D will continue from world leading tax credit incentives.
One of the common barriers to building a successful, innovative company is the ability to attract the right talent.
The EMI Share Option Scheme is a Government approved scheme enabling employers to award staff equity, or the promise of future equity, in the business. In particular where the business is in start up or scale up phase, the award of share options can be a cheap alternative to paying large salaries and so is designed to help businesses to incentivise staff in non-cash terms.
A new consultation will be launched to assess the competitiveness and effectiveness of the current EMI Share Option Scheme and how it can be improved to help more companies recruit and retain the talent they need. This is seen as a really encouraging approach being taken by the Treasury, and further guidance will be issued by Old Mill during the consultation process.
The Government has pledged to develop hubs of innovation in every part of the UK. As a part of this commitment, eight freeport zones will be created across the UK to stimulate business growth locally by the provision of tax breaks and reliefs to businesses operating within them.
The tax breaks will include an enhanced 10% rate of Structures and Buildings Allowance (a subset of the capital allowances regime) for constructing or renovating non-residential structures and buildings in such sites. In addition, enhanced plant and machinery capital allowances will be available, as well as full relief from Stamp Duty Land Tax and Business Rates. The possibly of an employer NIC relief has also been suggested.
One of the Freeports will be established in Plymouth, unlocking million pounds of funding, creating jobs and boosting growth and innovation, in the city and the wider South West region.
The Freeports tax sites are based on similar concepts as the existing tax advantaged Enterprise Zones (EZ). There are four EZ across the South West region:
- Bristol Temple Quarter & Bath, North East Somer Valley;
- Exeter and East Devon;
- Oceansgate Plymouth
- Marine Hub, Goonhilly Earth Station and Aerohub in Cornwall.
- Visa reform for high-skilled migrants – the Government promises cuts to red tape to help UK business attract the best science, research and tech talent globally.
- New £375 million Future Fund: Breakthrough Scheme, to encourage private investors to co-invest with Government in the most innovative, R&D-intensive, scale-up companies. This Scheme will build upon a success of the Future Fund scheme introduced in May 2020.
- Help to Grow: Management and Digital – to boost growth across the SME sector, the Government will introduce a subsidised programme to upskill SMEs across the UK in business management, and free online advice and a discount to adopt productivity-enhancing software.
- Various green energy innovation schemes will be introduced as a part of the Government’s £1 billion Net Zero Innovation Portfolio, supporting the development of new solutions to reduce carbon emissions.
- The New UK Infrastructure Bank will provide finance to private sector and local authorities to increase infrastructure investment, help tackle climate change and promote economic growth across the UK
- The Government confirmed its commitment to making the UK the best place for high-growth, innovative businesses to publicly list.