The Spring Budget has been eagerly anticipated by us all to get clarity about the steps proposed by the government to combat rising inflation, increasing cost of living, as well as what support is offered for businesses. The statement focused on personal tax implications and the plans to recover the costs of the pandemic and quantitative easing.
Inflation was exacerbated by Russia’s invasion of Ukraine, seeing the Office for Budget Responsibility (OBR) increasing the forecast of the Consumer Price Index (CPI) from October 2021 of c.4.4% in Q2 2022 to c.8.7% in Q4 2022;
A proposed decrease to the basic rate of income tax in April 2024 from 20% to 19%;
Reduction in GDP growth forecast in 2022 from 6.0% to 3.8%, which is primarily attributable to higher rates of inflation and weaker consumer spending appetite; and
Changes to the R&D tax reliefs scheme.
SEIS / EIS Considerations
With the approaching sunset clause of EIS in 2025, the industry hoped for some clarity or discussion surrounding the extension of the scheme, but this was not addressed. Furthermore, there was a notable absence of commentary on venture capital given the wider macro-economic picture.
R&D Tax Credits Consideration
The government has reiterated its commitment to nurturing the country’s innovation economy and has outlined the following three priorities:
- Capital – Reducing and amending taxes on businesses and external financing to incentivise investment into productive assets;
- People – Developing the environment for a highly-skilled workforce and encouragement for employee training through assessment of the current tax system; and
- Ideas – Helping private sector investment reach concepts and ideas with a pledge to increase public investment into R&D.
One notable change set out in the Tax Administration and Maintenance Command Paper was that R&D tax reliefs would now include some cloud and data service costs. This will have far-ranging implications, particularly within ‘Knowledge-Intensive Companies’ as defined by the Finance Act 2018, further increasing thresholds of total funding, the life of the company, and available annual investment through EIS, to name a few. It should be noted, however, that in the weeks prior to the Spring Statement, the Chancellor had stated his concerns about the value added by R&D Tax Credits, and particularly the SME scheme, which is the R&D tax credit scheme for companies with fewer than 500 employees and less than €100 million in turnover. There may be further developments and changes coming in the Autumn Statement that may impact the SME scheme.