The Chancellor set out that he wanted to harness “British ingenuity to make us a science and technology superpower”, so just what did Jeremy Hunt’s first Budget actually deliver for technology businesses?
R&D
In November 2022, the Government announced that they were making changes to the R&D scheme that would, broadly, mean SMEs receive less benefit as a result of their R&D activity. These changes were not well received, and a partial roll back has been provided in the Spring Budget.
The Chancellor announced, “further support for R&D intensive Small and Medium Sized Enterprises (SMEs), via an enhanced rate of tax relief for loss-making companies”, which sounds like a positive, but on review of the technical detail, the further support turns out to be a slight reversal of the cuts to the R&D scheme that were announced in November 2022. The current rate of relief for loss-making companies is effectively 33p for every £1 spent, the November 2022 changes reduced that to 18.6p, but now, as a result of the announcement today, the rate of relief will be 27p. The final twist in this tale is that the new rate of relief will only be available to R&D “intensive companies” – defined as those spending over 40% of their total expenditure on R&D activities, the other rates of relief applied regardless of the level of expenditure.
The second change announced was a delay in implementing overseas expenditure restrictions by one year. Companies with overseas R&D expenditure were facing a big change to what could be included in their claim with effect from 1 April 2023, with almost all overseas expenditure being disallowed from that date. However, this change has been pushed back to become effective from 1 April 2024.
The final R&D point is that the Government intends to “keep open the option of implementing a merged scheme from April 2024”. The government will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the summer. Any further changes as a part of the ongoing R&D tax reliefs review will be announced at a future fiscal event, including a final decision on whether to merge the RDEC and SME schemes.
Capital Allowances
From 1 April 2023 until 31 March 2026, investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets. This new allowance, known as “full expensing”, means that companies will receive the same level of benefit as they do under the Super Deduction capital allowance that ends on 31st March 2023. The Super Deduction gave relief at 130% against a tax rate of 19% (giving 25% overall), and this new relief will give 100% relief against a 25% tax rate – also giving a 25% benefit. The Government’s own analysis, quoted by the Chancellor in his speech, shows that 99% of companies would already receive this level of deduction as a result of the Annual Investment Allowance so it is only a tiny fraction of companies that will see any additional relief as a result of this change. Finally, companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment.
Investment Zones
The Chancellor confirmed plans to create 12 “investment zones” across the UK, with each area having access to help worth £80 million over five years, enhanced rates of Capital Allowance, Structures and Buildings Allowance, and relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions. The exact location of the zones has not yet been finalised, but two of the proposed areas are the South Yorkshire and West Yorkshire Mayoral Combined Authority regions which is great news for local businesses.
Artificial Intelligence & Quantum Computing
This area will not have an impact on most companies, but it demonstrates an ongoing commitment to the development of technological solutions. The government has pledged to invest in the region of £900 million for cutting-edge computing power, a new “AI Research Resource”, and the government will award a £1 million “Manchester Prize” every year for the next 10 years to researchers that drive progress in critical areas of AI. The government has said that they will invest a total of £2.5 billion over 10 years in the field of quantum science and engineering.
Carbon Capture
As part of the investment in green industries, the government has committed to provide up to £20 billion funding for early deployment of Carbon Capture, Usage and Storage (CCUS), it is hoped that this will kick-start the delivery of subsequent phases of this new sustainable industry in the UK. A shortlist of projects for the first phase of CCUS deployment will be announced later this month. Further projects will be able to enter a selection process for Track 1 expansion launching this year, and 2 additional clusters will be selected through a Track 2 process, with details announced shortly.
Creative Industries
The film, TV and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions from 1 April 2024. The new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV will be eligible for a credit rate of 34%, and animation and children’s TV will be eligible for a rate of 39%.
In short, those in some specific sectors may be excited by today’s announcements, but in general, I expect that most technology companies may find little impact from the changes.
If you have any questions in relation to what we have mentioned above, please get in touch with your normal BHP contact.
