March 15, 2023

Jeremy Hunt Reverses Autumn Statement Proposal on R&D Tax could Appease UK Tech Start-ups!

The UK government recently announced changes to R&D tax relief for loss-making, R&D intensive SMEs in the spring budget. While some see this as a positive development, it is considered a relatively small concession that has come out of the blue.

R&D Intensive Companies

A company is considered R&D intensive when its qualifying R&D expenditure is worth 40% or more of its total expenditure.

The changes mean that R&D-intensive, loss-making companies will be able to maintain a reasonable level of R&D tax relief, with a cash credit of 27p for every pound spent on R&D related activities. This is a significant increase from the previously planned 18.6% cash credit for other claims in the Autumn Statement, but still falls short of the previous rate of 33p in the pound for R&D activities.

This change is a relatively positive development for the UK tech start-up market, which has been rapidly growing in recent years.

One of the key reasons for this growth is the innovation and creativity that drive the tech start-up scene. These companies are constantly pushing boundaries and developing new products and services that have the potential to revolutionise the market. R&D tax relief is essential for start-ups as it helps reduce the financial burden of developing new technologies and products.

However, it is not just about the financial benefits of R&D tax relief. It also sends a strong signal to the tech start-up community that the government is committed to supporting innovation and entrepreneurship in the UK. This is crucial for attracting investment and talent to the sector, which is essential for continued growth and success.

Overseas costs also get a respite.

In addition to the ability to claim R&D tax relief on these costs, another key factor for R&D claimants is the use of overseas professionals. Many companies rely on outsourcing to keep their costs low or to find the right skill set for their R&D projects.

This can be a controversial topic, with some arguing that it takes jobs away from UK workers. However, the reality is that outsourcing is often necessary for companies to carry out their innovative R&D projects.

By using overseas staff, companies can keep their costs low, which means they can reinvest more money into R&D and other essential areas of the business. This can ultimately lead to faster growth and greater success, which benefits the UK economy. Additionally, by outsourcing to countries with lower labour costs, companies are able to compete on a global scale, which is essential for success in today’s tech industry.

While cost is one reason why some companies subcontract overseas, others do so because of a skills shortage in the UK. In certain sectors, it may not be possible to recruit an engineer locally, making it essential to rely on overseas subcontractors or EPWs (employees from overseas).

The Department for Work and Pensions is aware of the skills shortages and intervenes as required. However, resolving the shortage will take years, and training engineers is not an overnight process.

Overall, the two changes to R&D tax relief that were announced are a minor concession for the UK tech start-up market, and will contribute in a small way to ensure that innovation and creativity continue to flourish. By temporarily continuing to support the use of overseas professionals, the government is taking a more positive approach to demonstrating its commitment to supporting the growth and success of the UK R&D industry.

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