In his Spring Budget today, Chancellor Jeremy Hunt depicted a narrative of economic resilience and recovery, headlining a £10bn national insurance cut in preparation for the impending general election. Asserting that Britain’s economy has ‘turned a corner,’ Hunt cited a substantial decrease in inflation from 11% to 4%, with further drops to below 2% projected in upcoming months. He also acknowledged a rise in business confidence, as reflected by the Lloyds Business Barometer’s three highest scores since February 2022.
The budget presented promising prospects for UK tech companies and innovators. Central policies included significant AI funding and a £360m R&D package. However, the upcoming merger of the R&D tax credit scheme, set for the 1st of April 2024, was conspicuously absent from the budget.
Emphasising the UK tech sector’s growth, Hunt announced several supportive policies, confidently proclaiming, “We’re on track to become the world’s next Silicon Valley.”
Here are the key points:
The merging of the R&D tax credit scheme will go ahead from 1 April 2024
Despite concern from the House of Lords, there was no mention of reforms or delay to merging the R&D tax relief scheme in the Spring Budget 2024; the merger will proceed as planned for accounting periods on or after 1 April 2024. This change was initially announced in the Autumn Statement and later confirmed in the Finance Bill.
Under the merged scheme, companies of all sizes must submit claims similar to those under the current RDEC scheme. The RDEC tax credit remains 20% of a company’s R&D expenditure, taxed at the standard Corporation Tax rate (19% to 25% based on taxable profits). The net RDEC benefit varies between 15% and 16.2%, depending on the company’s tax position. On top of this, loss-making SMEs that spend up to 30% of their total expenditure on R&D could receive relief of up to 27%.
The merged scheme will exclude overseas subcontractor or EPW costs from the R&D claim, with few exceptions. However, costs for R&D contracted out to a subcontractor can be included in the claim, subject to specific legislation. For more information, please read our guide on the merging of the R&D tax relief scheme.
At EmpowerRD, we’re fully prepared for this transition and ready to help companies navigate these changes.
An expert advisory panel to support the administration of R&D tax relief will be established
A notable announcement is HMRC’s creation of an expert advisory panel. This panel aims to support the administration of R&D tax reliefs, offering insights into cutting-edge R&D in sectors such as tech and life sciences. It will work closely with HMRC to ensure guidance remains updated and clear for claimants. This is a positive step forward, reflecting suggestions for a comprehensive consultation process.
This development is seen as a step towards adopting a model similar to Australia’s, where a dedicated office oversees industry innovation, ensuring efficient administration and clear guidance for claimants.
At EmpowerRD, this is something we have been advocating for. It signifies an essential step in ensuring that R&D tax reliefs are well-administered and that guidance remains relevant and clear for all claimants.
Record investments in science and innovation
The Spring Budget 2024 reinforces the UK government’s commitment to science and innovation as key economic drivers. Notable investments include funding for the Faraday Discovery Fellowships and Green Future Fellowships, £14 million for public sector research and innovation infrastructure, and up to £100 million for future satellite communications. These initiatives build on the £750 million R&D investment package from Autumn Statement 2023.
UK government boosts startup growth with pension fund reforms
To boost UK startups and high-growth companies, the government plans to redirect pension funds towards them.
Chancellor Jeremy Hunt introduced new measures, including public disclosure of investment proportions in UK businesses versus overseas. Funds must publicly compare their performance or face restrictions on new business.
Hunt warned of “further action” if funds don’t improve. In addition, he introduced a “British ISA,” designed to encourage retail investment in UK companies, offering an additional £5,000 annual allowance.
These steps show the government’s dedication to supporting UK startup growth.
AI funding
The UK’s commitment to AI remains steadfast. Chancellor Jeremy Hunt announced a £100m five-year funding package for the Alan Turing Institute, the national AI and data science research body.
Additionally, a £7.4m AI upskilling fund for SMEs has been launched as part of a new SME Digital Adoption Taskforce. The government also plans to increase access to expanded compute power for developing new AI technology.
AI is set to play a significant role in improving public services, increasing funding to boost the number of AI experts in the public sector. Plans are underway to enhance efficiency within the NHS and Public Sector Fraud Authority through AI integration.
These initiatives build upon the Autumn Statement’s substantial investments into the UK’s AI capabilities, including £500m towards compute infrastructure.
HMRC Consultation on tax advisory standards
Although not included in the Spring Budget 2024, HMRC made a significant announcement today. It launched a consultation to elevate standards in the tax advisory market, particularly concerning R&D Tax Credits. This is an essential step towards eradicating non-compliant claims and substandard tax advice. While separate from the budget, the proposed measures are crucial in maintaining the integrity of the tax system and represent a positive move forward in regulation.
Conclusion
In conclusion, the Spring Budget 2024 highlights a promising focus on innovation and R&D, signifying a potential move towards a smoother era for R&D tax credits in the UK. With substantial commitments to AI and initiatives designed to fuel startup growth, it paves the way for an economic rebound and tech progression. These endeavours help gear towards positioning the UK as a dominant global hub for technological innovation.
