The chancellor delivered his first full Budget speech last week, which was met with indifference from the business community. This was understandable given the previously announced increase to Corporation Tax and slashing of the personal dividend allowance and Capital Gains Tax threshold. There was little in this announcement to lessen the impact of these tax increases, especially the substantial Corporation Tax rise of 6 percentage points, a 31% increase on profits over £250k!
However, lurking in the finer detail, there was an intriguing attempt to build the UK into a leader in the Tech world (at least in Europe).
The UK previously thought of itself as a leader in Tech, especially the strong fintech scene centred around London. Still, a culmination of Brexit, changes to IR35 rules, the shit show in Government over the last year, and significant increases to Corporation Tax rates have seen a major shift across Europe.
This was the Governments attempt to start to change that.
Before I delve into the depths of the Red Book (The detailed publication that contains all policy changes, even the ones they don’t cover in the speech), I think I need to make two things clear:
-
This post is focused on the tech industry. Check out the Crisp Accountancy Blog for a broader look at the announced changes.
-
Despite discussing the positives, this is not an endorsement of the current Government! I have no loyalty to any party. I am a swing voter. In fact, I think all of the current parties are pretty crap! I rarely give opinions on general politics but instead, focus on the pros or cons of individual tax and business policies. For balance, the increase in Corporation Tax is a bloody disaster.
The Banking Outlook
Although this wasn’t a Budget policy, it was a major event and one so close to the Budget that I think it deserves mention.
In case you have been living under a rock recently, we saw Silicon Valley Bank (SVB) Collapse in the US and bring down the UK arm too. This all took place leading into a weekend. Before the markets opened on a Monday morning, the Government announced a deal where HSBC had brought out the entirety of SVB UK and protected all its depositors - This was an amazing outcome from what looked like a very bleak position for tech founders over the weekend.
In case you are unfamiliar with SVB, it was uniquely placed in that it understood the tech scene and was a favourite of the tech and VC world. This bank’s failure would have brought down the majority of the tech industry in the US & UK - devastating.
For transparency, I am not entirely sure of the extent the Government played in securing the deal, but in any case, I am very grateful. It also sets the tone for the Government approach to tech “We have your back” - I fully appreciate this is very up for debate!
There was also the announcement that, based on the SVB collapse, more finance-based measures would come in August - although we don’t know what these are yet.
London is still one of, if not the largest, global financial hubs. The access to capital and the banking rules work in favour of Tech start-ups.
Expansion of the SEIS
The Seed Enterprise Investment Scheme (SEIS) is an often misunderstood scheme to help drive investment in early-stage start-ups. It gives the individual investor very attractive tax relief in exchange for the high risk associated with these companies (most fail, so you have a high chance of losing your money!).
SEIS had quite a small scope before you would have to switch to EIS - the older sibling of SEIS, with broader limits and slightly reduced rax relief, although still attractive.
I won’t go into the full detail of how SEIS works here but look out for a Twitter thread coming soon.
What we did see at the Budget was confirmation that the SEIS had been broadened and the existing limits in place increased.
The limits that apply to individuals will increase from £100k to £200k per year.
For companies, the limit on total SEIS investment they can bring in rises from £150k to £250k.
The company’s “gross assets” limit goes from £200k to £350k alongside the age limit extending from 2 to 3 years.
This means that individuals can make more SEIS investments, and the number of companies and total investment opportunities will also increase. This can only be great news for the Start-up scene. Angel Investors already loved SEIS and this will encourage more investment. Great news all around!
R&D Tax Credits
Already announced but confirmed to kick in from the 1st of April was the increase of the Research & Development Expenditure Credit (RDEC) from 13% to 20%. This is the scheme used mostly by large companies.
The major announcement in the Budget speech was the changes to R&D for some SMEs.
From the 1st of April, loss-making R&D intensive SMEs will benefit from an increased rate of relief, now £27 from every £100 spent on qualifying R&D investment. This will be for those SMEs spending 40%+ of their total expenditure on R&D.
This was another very welcome announcement for tech start-ups.
There was also a delay on the previously announced restriction on overseas expenditure. It was due to come in next month but will now start from the 1st of April 24 instead.
“The government remains committed to supporting R&D and recognises the important role that R&D and innovation play for the economy and society.”
Crypto and Web3
The announcement was buried in the red book that from 24-25, there will be a separate section on self-assessment forms for cryptoassets. Until now, Crypto gains broadly followed the CGT rules for other assets and would have been grouped in the same section.
This signifies that the Government are certainly paying Crypto more attention. The cynic in me, though, worries about their intentions. After separately identifying crypto gains, it would be very easy for HMRC to target taxpayers involved in Crypto and could also lead the way for changes to how these are taxed - this is a case of watch this space.
Also not deemed worthy of a mention in the speech was a vague paragraph covering the Government’s stance on Web 3. Make of it what you will...
“The government is committing to undertake work to maximise the potential of the future of web technology, sometimes known as Web3 or the Metaverse, to spur UK growth and innovation, alongside empowering individuals to influence how their data is used while managing downside risks to privacy, security and harms.!”
Small tweak to EMI
The Enterprise Management Incentive scheme (EMI) is heavily used in the start-up world. It is a scheme designed to offer tax relief on shares and grants issued by companies to their employees.
There was a small but welcome simplification of one part of the EMI scheme.
From April 2023, you will no longer be required to set out details of share restrictions within the option agreement nor declare an employee has signed a working time declaration.
The deadline to notify HMRC of a grant of EMI options will be extended from 92 days following the grant (current rules) to the 6th of July following the end of the tax year. Effective from April 2024.
Again, these simplifications are relatively small but welcome in trying to simplify some of the huge complexities surrounding tax that our start-ups (and other businesses) have to deal with.
Women in Tech
It’s no secret that women are hugely underrepresented in Tech, a problem which needs fixing ASAP. This Budget did take a step towards helping address this and empowering women in business more generally.
From the 24th of April, working parents of 2-year-olds will get access to free childcare for 15 hours per week. This will be extended to working parents of 9-month-olds from the 24th of September. From the 25th of September, this will cover all 9 months to 3 years up to 30 hours.
This should address the huge obstacle currently presented by sky-high childcare costs, which had a disproportionally large impact on preventing women from returning to work if they choose.
Focus on AI
Not surprising, given the explosion of AI over the recent weeks, but it was great to see AI in particular get such a strong mention in the speech.
They committed to encouraging investment and smarter regulation in the sectors they saw as high growth, digital Tech being one of these.
The Government agreed with and committed to all of the recommendations from Sir Patrick Vallance’s review of the regulation of emerging digital technologies.
In line with two of the Review’s key recommendations, the Government will invest £900 million to build an exascale supercomputer and establish a new AI Research Resource.
They will establish a task force to advance UK sovereign capability in foundation models, including large language models, and provide direct advice to ministers to ensure that the UK is at the forefront of this technology. They want some of the juicy action associated with GPT for themselves.
A new award was announced, offering £1m every year for the next 10 years to those that drive progress in critical areas of AI - The Manchester Prize
£100 million of funding has been allocated to the Innovation Accelerators programme covering 26 groundbreaking R&D projects across Glasgow, Manchester & the West Midlands.
A large focus also went to Quantum Technologies with the announcement of a new strategy, investing £2.5 billion over 10 years to make the UK a leader in this technology.
Despite my disapproval of the increase in Corporation Tax, you can see above that plenty of hope was offered to the tech industry in this Budget. Of course, I offer no promise about their ability to deliver on their word, but let’s see.
I have a favour to ask now. I have really enjoyed writing this newsletter over the last couple of months. Pulling this together takes a fair amount of time and effort, so it would be great to get some feedback - just hit reply and let me know what you think!
If you find value in these posts, please help me spread the word.
About the author
Luke Desmond
Fractional CFO for Tech, eCommerce & SaaS. CEO @Crisp_Acc provides virtual finance functions. Co-Founder @getvaulta SaaS Startup for accountants.