Budget 2020: How the government is proving it cares about innovation

Stuart Weekes, Partner, Corporate Tax
Is this government serious about innovation? Early reports are encouraging from the 2020 Budget. However, as usual the benefit of the changes will emerge over a number of years.

The target is still for Research and Development (R&D) to be 2.4% of GDP by 2027, but this is through partnership between the public and private sectors. The announcement of £22 billion of public investment by 2024-25 in people and ideas will be welcomed by businesses in the sectors that qualify. Life sciences are championed by providing additional funding through the British Business Bank as well as direct investment in the facility that is seeking to find a treatment for coronavirus (COVID-19). Nuclear fusion for clean energy, space and electric car industries are particular beneficiaries.

The private sector is rewarded with an increase in the R&D Expenditure Credit (RDEC)  but this typically benefits large companies not the multitude of innovative small or medium-sized enterprises (SMEs). The R&D schemes do not reflect all innovative modern businesses and it is great news that the government will consult on the inclusion of expenditure on data and cloud computing as qualifying for relief.

Following the model in the US, the government has also announced significant investment in a new blue-skies agency. Modelled on the Advanced Research Projects Agency, this will presumably be used to develop emerging technologies. It has great ambition and it is important to focus attention on the experts but will the government also ensure that commercialisation of the technologies is handled by experts so that the benefit of this investment is not lost? If handled by those less experienced, this could result in a waste of UK innovation.  

Interesting perhaps that there were no announcements to the UK’s patent box. An innovation relief that has not had much take up, but is more valuable now that the main rate of corporation tax is not reducing to 17%. This was an opportunity for the Chancellor to review and revitalise this valuable benefit. A relief that had been limited in benefit by EU pressure, perhaps this is something that will be in the back pocket for use in the various forthcoming trade negotiations?

One change not in the Budget papers relates to companies that will be caught by the new IR35 rules from 6 April 2020. The new rules have the potential to exclude certain service provides from being ‘externally provided workers’ (EPWs). The payment by a company to an EPW can qualify for R&D tax credits. Changes will be made to legislation to ensure that such costs continue to qualify.

While the government is trying to clamp down on planning it sees as abusive tax avoidance it is encouraging that it recognises that innovation is a fundamental bedrock and principle to the future growth and prosperity of the UK. Hopefully this commitment will provide certainty to businesses to invest and enable the UK to have a strong economy and deliver the growth it deserves.  

For companies not sure if they can benefit from R&D tax benefits, it is important to seek professional advice to see if you are eligible for a claim. Contact Crowe’s Innovation Taxes team for clear pragmatic advice about R&D tax benefits and what impact these could have on your company or visit our dedicated R&D page.

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Stuart Weekes
Stuart Weekes
Partner, Corporate Tax
Thames Valley