Successive Governments have identified technology and innovation key to the UK’s economic growth and have implemented tax measures and incentives to encourage development and investment in technology-based businesses. So, has that focus continued under the new administration and has this been reflected in the Labour Government’s first budget?
Industry focus
The Government has repeatedly stressed the importance of technology and innovation. The recent Green Paper – “Invest 2035 – the UK’s modern industrial strategy” issued for consultation on 17 October identifies eight key sectors for focus. Included within these eight are:
The Budget
From a business perspective, the impact of a Budget is typically split into – taxation measures and investment/funding proposals.
From a taxation perspective technology-based businesses will be affected by the increase in Employers’ National Insurance to 15% and the lowering of the threshold in the same way that other businesses will be. For earlier stage technology businesses this will impact on their funding runways and in some cases could make it even more challenging to meet investor milestones.
Many technology businesses include share options and specifically Enterprise Management Incentive Scheme share options to incentivise employees. The changes in the rate of Business Asset Disposal Rate (from 10% to 14% and then 18% from 6 April 2026) will impact on the attractiveness of such incentives, but they continue to have significant tax advantages compared to most other long term incentive plans.
Key tax initiatives that impact on such businesses to incentivise innovation are R&D tax credits and Patent Box. These are both unaffected by the Budget at a headline level (with the R&D tax credit relief scheme having gone through recent changes). However, it was announced that an R&D Advisory Panel would be established and HMRC would be consulting on widening the use of advance clearances on R&D relief.
There was also good news in that (as announced recently) the Enterprise Investment Scheme and the Venture Capital Trust Scheme (both valuable initiatives to incentivise investment in early stage companies) remain untouched and will be extended by ten years to 5 April 2035 as planned.
Most technology businesses have a global reach if not a global presence, with subsidiaries or branches in a variety of jurisdictions. In the Budget it was announced that there will be consultation on Transfer Pricing arrangements, which could impact such businesses and the way in which they structure both their investment in their overseas subsidiaries but also transactions between them.
Turning to investment and funding for innovation, there were a number of things announced within the Budget:
Looking forward for the sector
Broadly for innovative companies the recent Budget is not all bad. It will be interesting to see the outcome of consultation on the Green Paper and the publication of the Industrial Strategy next year, given the repeated assurances that innovation and technology are seen as key to the economic growth of the UK.
About us
James Cowper Kreston has worked within the life sciences and technology sectors for over 30 years. We have a team of specialists who bring the depth of our expertise to advise on financial, accounting and taxation issues affecting businesses and their stakeholders throughout the life-cycle of technology-based businesses from spin-out or start-up to exit. Our expertise is recognised by our engagements to advise technology transfer institutions and investors as well as by our involvement in policy consultations affecting the broader sectors.
To discuss this in further detail, please contact one of our Technology team members here.
