Supercharging Britain's science and tech industry

Incentivising innovation was referenced in several announcements made, most notably on R&D tax reliefs, support for the technology, life sciences and creative sectors.

There are already changes happening to the R&D tax regime, most notably a closer alignment of the reliefs available to companies under the SME scheme and the RDEC scheme with effect from 1 April 2023, as announced in the last Autumn statement. We also know, as a result of previous announcements, that there will be changes to the R&D tax regime to expand the range of qualifying expenditure to include data and cloud computing, but also to require specific claim documentation, declarations and pre-claim notifications. 

There were further changes of note announced today, which we welcome:

• Additional tax relief for R&D intensive SMEs – a higher rate of relief for loss-making SMEs from 1 April 2023, enabling them to claim a payable credit of 14.5% for qualifying R&D expenditure. This will apply to SME companies whose qualifying R&D expenditure comprises at least 40% of total expenditure. In the context of total R&D expenditure in the economy, the additional support equivalent to £500m per annum is not material. However, by targeting this funding at this type of business, it will be particularly helpful for start-up companies that are prevalent in the technology and life sciences sectors and the estimate is that some 20,000 companies will benefit.
• Delay to restrictions on overseas expenditure in R&D tax reliefs – the deferral of these previously announced changes on some overseas expenditure from 1 April 2023 to 1 April 2024 is in the context of ongoing consideration by the government of a potential new R&D tax relief scheme that would merge the current SME and RDEC schemes. This is a sensible move, delaying what would have been a major change to the R&D regime, whilst the design of this new R&D scheme is still at the consultation stage. The government is currently considering the responses, including that of Mazars to a consultation on the merger of the R&D regimes, a consultation that only closed on 13 March 2023. No decision has been made to date, but the government is keeping open the option of implementing a merged scheme from April 2024.

Aside from the changes to the R&D tax regime, there were a number of other welcome announcements that were made in the context of encouraging innovation and creativity, as a foundation of a successful economy. We would highlight two of particular note, the first of which sees recognition for one of the most recent areas of technological development, Artificial Intelligence (AI), and the second, continued and more targeted support for the successful creative sector, focussed on TV, Film and Video game development:

• Support for emerging digital technologies - at the time of the Autumn Statement in 2022 the government asked Sir Patrick Vallance to lead the Pro-innovation Regulation of Technologies Review. The government has announced that it is taking forward all of Sir Patrick’s recommendations on the regulation of emerging digital technologies. These include a number of initiatives designed to help innovators to get cutting-edge AI products to market faster, to provide a clearer IP protection framework for these types of products and to support research into AI. The latter will include a prize of £1m every year, for the next ten years, to the team that produces the most ground-breaking British AI research. This will be called the “Manchester Prize”, referencing the pivotal role that the University of Manchester had in the 1940’s in computer development.
• Reforms to audio-visual tax reliefs – following a public consultation, the film, TV and video games tax reliefs are to be reformed, becoming expenditure credits instead of additional deductions from 1 April 2024. The new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%. The expenditure threshold for high-end TV will remain at £1 million per hour. The new Video Games Expenditure Credit will have a credit rate of 34%. Qualifying expenditure for the Video Games Expenditure Credit will be expenditure on goods and services that are used or consumed in the UK.

It is reassuring to see a Budget that is full of references to the importance of innovators and the creative industry in developing wealth for our nation, and that recognises that there is a need for the State to have a role in supporting these activities. We look forward to this being a continued area of focus for the government and that the statements of support and intent are backed up fully with appropriate and necessary funding going forward.

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