r&d tax credits

Emergency Budget 2010: What it means for fast growth technology businesses

There was mixed news for fast growth technology and digital businesses in today’s Emergency Budget. Headlines were as follows:

Corporation tax rates will be cut from 21% to 20% for small companies ie those with taxable profits up to £300,000, with effect from 1 April 2011. Large companies will benefit from tax rate cuts from 28% to 27% in 2011 and a 1% decrease each year to 24% in 2015. A hugely competitive rate.

Capital gains tax for entrepreneurs was actually enhanced with the 10% effective CGT rate preserved under Entrepreneurs’ Relief and the lifetime allowance increased from £2m to £5m. It was disappointing that more was not done to extend the benefits of Entrepreneurs Relief to employees holding share options, many of whom will be taking a career risk sticking with fledgling startups (rather than taking ‘safer’ jobs) so they deserve to be rewarded like the founder shareholders.

New start ups in the north west will benefit from a national insurance contributions holiday for the first year of trading for the first ten employees. The scheme will run for 3 years and could save businesses up to £50,000. It will kick off in September this year but businesses started in the interim may qualify.

Capital allowances will be reduced to fund the above corporation tax rate with the Annual Investment Allowance for investment in say computer equipment and office furniture reduced from £100,000 to £25,000 from April 2012. There are further reductions for investment in fixed assets so businesses should seek to accelerate planned capital spend before April 2012 when the changes take effect.

VAT increases from 17.5% to 20% from 4 January 2011 should have minimal effect on most B2B businesses as the increased VAT rates should wash through in most cases. B2C businesses will be hit next year although a 20% VAT rate remains competitive globally.

R&D tax credits will be preserved which is great news and a review will take place in line with the Dyson review which may enhance the relief. Disappointingly the planned video gaming relief will be withdrawn – why this is the case is baffling to me as the video games industry is one in which we already have a competitive advantage and the likes of Canada already have such tax breaks.

A Regional Growth fund along with pressure on banks to lend to SMEs should assist in ensuring that businesses have much needed access to funding.

Overall, the Emergency Budget was positive for businesses with a clear plan for growth and stability over the next 5 years.

What’s your view?

Emergency Budget Wishes 2010

Letter to George Osborne MP regarding my wishes for next Tuesday’s Emergency Budget Speech:

Dear Mr Osborne MP,

Emergency Budget 2010

I appreciate that you have an extremely difficult job next Tuesday 22 June 2010 in delivering a Budget Report that seeks not only to balance the books over the longer term but to also avoid derailing any possible chance of an economic recovery in the UK in the short to medium term. No mean feat!

I ask that you place support for Enterprise and Business at the centre of your plans. In my view, this represents the only fighting chance we have of preserving jobs – so that people can keep on saving and spending – whilst generating profits and economic growth to keep the till ringing at the Exchequer with tax receipts for years to come (and so pay down our monstrous public deficit).

Central to this approach must be a “sleeves rolled-up” desire to discard with red-tape, bureaucracy and other hurdles to businesses getting on “with doing business” aligned with a clear vision and road-map of the UK as a great place to do business. This must be a long term plan backed with long term measures. No short term chopping and changing – we’ve had enough of this of late – as businesses want “certainty” so that they can plan for the future with the confidence that the rug will not be pulled out from under their feet anytime soon. (As an advisor, I agree that this would be nice too).

You have already set out in your coalition agreement that you will increase the rate of capital gains tax for individuals, however, I ask that you stick to your pledge to retain more attractive rates for investment in business assets and avoid implementing any cumbersome taper relief measures that cause wide-spread head-scratching. Keep it simple. In a similar vein, I ask that you withdraw the hideously complex restrictions on tax relief on pension contributions made by higher earners so that people can save for their retirement without having to navigate this minefield.

You have also expressed a wish to simplify corporation tax to make the UK one of the most competitive tax systems in the world. I wholeheartedly agree with this lofty goal but ask that you refrain from withdrawing tax incentives that have helped influence longer term business planning in a positive way such as R&D tax credits, enhanced capital allowances and the forthcoming patent income and gaming relief tax breaks. The UK’s highly successful entrepreneur and inventor, James Dyson, has called for the R&D tax credit to be retained and enhanced – although I question whether the relief should be aimed solely toward particular high tech sectors as Dyson suggests. Further, a recent report by NESTA points to recent findings that the fastest growing 6% of businesses generated 1/2 of the jobs created in the UK between 2002 – 2008 – what these companies had in common was a disproportionate tendency to be innovativeWe have the expertise to build innovative intellectual property rich businesses that become key exporters bringing cash into our country and you should seize this opportunity by demonstrating commitment via targeted tax incentives such as those noted above.

Capital allowances should continue to be used as a lever to encourage ‘greener’ investment and I would also like to see the Government implement tax-advantaged status for specific business parks or zones to encourage inward and internal investment in businesses spread across the UK. The increasing prominence and differential of London as a business centre compared to the rest of the UK regions needs recalibrating and such measures could help. This could also lead to much needed job opportunities in areas of high unemployment – particularly where painful planned public sector jobs cuts are implemented.

Given the substantial revenue raising potential of an increase in VAT rates, I can understand why this is likely to be a target for change. Most B2B businesses would suffer minimally from such an increase as they would pass on the cost in most cases, however, please be mindful of the pain likely to be suffered by UK retailers and customers alike. I would also ask that any planned phased increases take account of the administrative and labour costs of changing prices for each uplift and its timing (e.g. not over the Christmas busy season like your predecessors implemented please), if such an approach is ultimately planned.

Other matters I would like to see addressed include: no drastic cuts to the HMRC Time to Pay Arrangement which so many businesses have been relying on to spread their tax bills whilst the banks have been less willing to lend; a withdrawal of the planned 1% increase in Employer’s National Insurance contributions and some practical, workable solutions for married / civil couples to split their personal income tax allowances.

The above is just a handful of the sorts of changes I would like to see but my overall plea is that a long-term business friendly strategy is adopted that opens the door for new business start-ups, increased overseas inward investment and a supportive tax and business regime that gives every promising UK business a chance to flourish.

Please let me know if you have any questions.

Best wishes and good luck for next Tuesday.

Yours sincerely

Steve Livingston

Have I missed anything?

Conservative Manifesto – What does it mean for your business?

“Our ambition is to create the most competitive tax system in the G20 within five years.We will restore the tax system’s reputation for simplicity, stability and predictability.”

David Cameron and the Conservative Party launched their manifesto for the impending May 2010 election today.

So what were the key points for business?

  • Emphasis is made of (re)introducing a simplified, more stable and certain tax regime. There is little doubt that small and large businesses alike are confused by the levels of bureaucracy and red-tape mixed with constant meddling in the UK tax system of late. An intention to introduce stability and certainty must be welcome. Mention is made of introducing an Office of Tax Simplification – did I just say plans to reduce bureaucracy……?
  • Tinkering with the planned increase in employer’s National Insurance – there appears to be a white elephant in the room here. Everyone seems to have been caught by the Tories’ proposed abolition of this “tax on jobs” when in fact the manifesto does not propose to abolish the 1% increase due in April 2011 but instead to tinker with the relevant income thresholds to make it apply to less employees and employers than would previously be the case – did I just say less meddling and increased simplification….?
  • Reduction in the standard rate of corporation tax for companies from 28% to 25%. Small companies rate to be cut from 21% to 20%. Further cuts to follow. But how will this be funded? By simplification – if so, what does this mean for the future of capital allowances for expenditure on fixed assets like plant and equipment….? Is the end nigh?
  • One year tax holiday from employer’s National Insurance for the first 10 employees of start-ups during the Conservatives’ first 2 years in Government
  • Research and Development tax credits (R&D tax credits) will be improved and refocused on hi-tech companies, small businesses and new start-ups.  Pretty much verbatim out of Dyson’ report as commissioned by the Tories – will the increase from 175% to 200% tax deductions be implemented….?
  • Cut red tape to enable businesses to be started quickly. A one-click registration model for new businesses rather than sifting through endless forms. Sounds interesting –  we await the detail.
  • £2,000 bonus for every apprentice hired by SMEs
  • Increased accessibility for SMEs to public sector contracts
  • No mention of VAT….?
  • Little mention of headline income tax rates….?

Is this enough support to help your business?

TIGA targets tax incentives to position UK Games Industry at the leading edge

TIGA, the trade association supporting the UK Games Industry, has launched its manifesto in readiness of the incoming governing party – whoever that may be from 6 May 2010?

Key proposals include (in my preferred order):

  1. Introduce a Games Tax Relief “as soon as possible” – we know it should be coming as it was announced in the recent Budget yet the exact details have yet to be revealed. The key point here is that other competing countries such as Canada, Australia. China, France and South Korea already receive support – we cannot allow this to drag on without concrete detailed proposals and an imminent timetable for its introduction. TIGA suggest that the relief should apply to any company subject to UK corporation tax so long as certain cultural tests are satisfied. They go on to suggest a series of tiered reliefs dependent on spend incurred in development of the games and the entitlement to a tax credit for qualifying companies. My concern is that efforts to make this as targeted as possible actually result in a more complex and burdensome regime that does not reach those UK gaming businesses that need it. I wonder whether a tax holiday system may be easier to implement?
  2. Increase the enhanced R&D Tax Credit to 200% (from 175%) for SMEs (Small and Medium Sized entities – basically those with less than 500 employees). I think this is right.
  3. Introduce the (lower 10% corporation tax) patent income regime as soon as possible. Like the Gaming Tax breaks, we know this incentive for patent income is on its way, TIGA quite rightly call for it to be introduced in 2012 rather than 2013 as currently proposed. The Netherlands have this now – why do we need to spend years consulting with businesses on this issue?
  4. Increasing the value of corporation tax losses – allow for corporation tax losses to be carried back 3 years to offset against previous years’ taxable profits rather than the current 1 year. There has been a temporary measure to allow a 3 year carry back but this extension has been limited to £50,000 of losses. I think this is a sensible proposal that would return us to the position we were in some 10 or so years ago.
  5. Extend the scope of Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) tax enhanced investing to include those businesses that fund rather than actually create intellectual property (IP). Given that IP will become increasingly valuable going forward, this makes sense.

Given that the UK Games sector contributed approximately £1 billion to the UK’s GDP and £400m in taxes to the Exchequer  in 2009, the Government should sit up, listen and take action.

You can download a copy of the TIGA manifesto here. Please leave your comments and thoughts.