The Chancellor has delivered his budget against the backdrop of an improved economic forecast from the OBR (Office for Budget Responsibility) and a commitment that there will be no recession in the UK with inflation expected to more than halve to just 2.9% by the end of 2023.
We look at the key announcements for our clients in the technology and digital sectors below.
Research and Development
There was a welcome £500m annual investment in the R&D scheme for SMEs. The changes, which are effective from 1 April 2023, are specifically targeted at loss-making R&D intensive SMEs i.e. those companies that would be most impacted by the rate changes announced in the Chancellor’s Autumn Statement.
Under the new scheme, eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, as opposed to £18.60 for non R&D intensive loss makers. This is welcome support to around 4,000 digital SMEs. An SME is eligible for the enhanced credit where R&D expenditure is worth 40% or more of their total expenditure.
The Chancellor’s previous announcement to expand the scope of qualifying expenditure to include data and cloud computing costs is retained but the previously announced restriction on the inclusion of some overseas expenditure has been deferred to 1 April 2024.
As previously announced, the main rate of corporation
tax will rise from 19% to 25% from 1 April 2023 for businesses with profits over £250,000. However, the Chancellor was quick to highlight that the UK will still be attractive to business with the lowest rate of Corporation Tax in the G7 even after this rise.
The Government announced a range of simplification measures for SMEs including changes to the Enterprise Management Incentive (EMI) scheme from April 2023 to simplify the process of granting options. The administrative burden of year end returns for employee benefits in kind is also being reduced through the option to payroll certain benefits in-year.
With the super-deduction coming to an end, the Chancellor announced the introduction of ‘full expensing’ with a 100% deduction available for qualifying plant and machinery. This will be available for three years but the Government announced their intention to make it a permanent policy. The 50% first year allowance for special rate assets (such as solar panels and thermal insulation) was due to end in March but this has been extended together with the 100% first year allowance for electric vehicle charge-point equipment.
These allowances are on top of the £1m Annual Investment Allowance currently available to all companies.
The Government has announced 12 new investment zones across the UK which will have access to £80m investment over five years. The package of investment is similar to that provided for the Freeports including a range of enhanced tax allowances together with grant funding to address innovation and productivity barriers.
The Chancellor highlighted the importance of AI to the UK economy, with an estimate of one third of all European AI companies being based here. He announced an investment of £900m in an AI sandbox to develop an exascale computer. There will also be a £1m prize (the Manchester Prize) every year for the next ten years for the company that delivers the best AI research.
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