Video: Spring Statement takeaways and the future of UK R&D
Yesterday, we heard Chancellor Rishi Sunak deliver the Spring Statement – of Budget as it’s sometimes called. As expected, no huge announcements were made, with Sunak instead concentrating on providing additional support to individuals at a time when household income is being squeezed.
Watch this 30-minute discussion for a real-business take on what the Chancellor’s Spring Statement means for our economy, SMEs, and – importantly – the future of innovation funding within the UK.
If you have any questions about what we discussed in this video, about the Spring Statement, R&D tax relief or innovation funding options, get in touch.
Key takeaways from the Spring Statement
The OBR is forecasting growth of 3.8% this year amidst unusually high uncertainty on the economic outlook. It expects growth to be 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026. But lower growth output has not affected jobs, with unemployment back to lower pre-pandemic levels.
Disruption to global supply chains and response to the war means OBR expects inflation to rise again, to average 7.4% this year
Three measures were announced to help people:
- Fuel duty will be cut for the second time in 20 years, by 5p per liter – the biggest cut to all fuel duty rates ever. It’ll come into effect from 6pm tonight and stay in place until March 2023
- VAT on the installation of environmentally friendly energy generation and insulation systems will be cut from 5% to 0%. The chancellor did address some issues in applying this in Northern Ireland under current post-Brexit legislation
- £500m of new funding is also to be made available to local authoritys’ Household Support Funds
A new Tax Plan was also announced, with three main priorities.
1) Helping families with the cost of living
While the proposed 1.25% increase in National Insurance will still go ahead, the threshold at which NI is paid is to increase by £3,000 to £12,570 from July.
For the self-employed, from April 2022 those with profits between the Small Profits Threshold and Lower Profits Limit will continue to build up National Insurance credits but will not pay any Class 2 NICs – meaning the first £12,500 earned will be tax free.
2) Creating conditions for innovation and investment
Sunak said that the UK is lagging behind in delivering the right environment for innovation, and previewed plans to tackle this.
He said that we fall short on creating and attracting high-caliber talent, and in promoting domestic investment.
- UK employers spend 1/2 the European average on training
- while spending on R&D is less than half that of the OECD average – despite us paying out more on R&D tax reliefs than almost any other country.
The Chancellor announced further R&D tax relief reform is to be expected to tackle this, confirming that cloud computing and data costs will qualify for R&D tax relief, as well as those incurred from ‘pure maths’ (the study of abstract concepts like number, logic, geometry and algebra). We’ll have to wait until the Autumn Budget for any further insight into what’s to come, but he did suggest an increase in relief may be on the table.
The exclusion of international activity costs in R&D tax relief claims has also been reconsidered, and R&D activities will still qualify where:
- material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep ocean research
- regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials
On investment, Sunak said that capital investment by UK businesses is lower than the OECD average of 14% and that he is looking at cutting tax rates on business investments. Again, further news on this will come in the Autumn Budget.
3) Sharing the proceeds of growth
In an effort to continue supporting SMEs in particular, the Employment Allowance is to increase by £1,000 to £5,000 in April.
The chancellor took the time to reiterate the availability of schemes like help to grow, and declared a 50% business rates relief for eligible retail, hospitality and leisure properties.
The temporary Annual Investment Allowance has been extended to 31 March 2023.
In line with the energy support for individuals, there will also be no business rates due on eligible plant and machinery used onsite in renewable energy generation and storage, while eligible heat networks will also receive 100% relief. This has been bought forwards and is a year earlier than previously planned.
The biggest news, however, is the proposed cut in income tax in 2024. It’ll go from 20p in every £1 to 19p – representing a tax cut for 30 million people at a time (2024) when the OBR expects inflation to also be back under control.Questions? Contact us
R&D Tax Relief: your view
With more R&D tax reform on the horizon this Autumn, we want to know about your experience of claiming innovation incentives and reliefs.
By spending 10 minutes completing this survey, you’ll help us shape the way we work with SMEs to unlock funding for innovation and growth, and get the chance to tell us exactly what you think advisors need to do to make the system more reliable, accessible, and rewarding.
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