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21 April, 2022 - 12:41

East Anglia businesses seek more answers from Sunak

There was a lot said in the Chancellor’s Spring Statement and there was a lot unsaid – particularly for businesses waiting for clarity on areas such as a potential overhaul of Britain’s corporate tax system, writes Phil Hall, a tax partner at BDO in East Anglia.

Rishi Sunak has promised a summer of consultations focused on ‘people, capital and ideas’ as he attempts to create conditions for accelerated growth and productivity while building fiscal resilience.

Areas under proposed scrutiny include incentives for investment as the existing super deduction relief is currently due to end in 2023. This may be extended or expanded in its use in the Autumn Budget, which would be well received.

But as we sit and wait for those ‘meaningful conversations’ to be had and the subsequent announcements now expected in the Autumn Budget, what do we know so far about the proposed tax changes and what can we expect as we near the end of the year?

What do we already know?
While businesses are facing headline tax increases across NIC and corporation tax, combined with inflationary pressures, ambitious, entrepreneurial companies investing for growth will be encouraged by a commitment to innovation and more specifically on incentives - a positive move to support long-term growth and productivity gains. 

Rishi Sunak clearly has the bit between his teeth when it comes to the current R & D tax regime and balancing the incentives given in one hand with the level of R & D carried out in the other. 

This is very much a ‘watch this space’ in terms of potential reforms, but one thing that was announced was the expansion of the qualifying expenditure categories to include all cloud computing costs associated with R & D, as well as pure mathematics to reflect the increasing amount of R & D being carried out in this field. This will mean that areas such as Artificial Intelligence and robotics will now be eligible for relief.

The Chancellor has previously announced plans to eliminate reliefs for overseas R & D, to meet the Government’s objectives to drive more innovation in the UK and keep a watchful eye on genuine UK R & D. 

While the Spring Statement acknowledged that there are certain instances where overseas research and development activity is necessary, there is a clear direction of travel of onshoring R & D. 

However, one thing is very clear: the Government wants innovation to increase and has put its money where its mouth is by pledging to increase support by £5 billion to £20 billion by 2024, with businesses expected to match this increase in funding.  

It remains to be seen what further proposals will be made to improve R & D tax relief, and whether that is focused on SMEs or around specific geographical investment in innovation, but the political rhetoric remains positive and firmly fixed on making the UK a competitive location for R & D. 

What can we expect?
The Spring Statement touched upon plans to improve the Apprenticeship Levy, to ensure it’s incentivising employers to deliver the right kind of training to boost productivity. 

A review of the current scheme, which was introduced in 2017 to encourage employers to use apprenticeships to upskill their workforce, will take place over the summer to determine whether it is “doing enough”. 

If he gets this right, this would be popular with business leaders who consistently tell us that being able to recruit enough talent with the right skills is the greatest barrier to growth. 

In the interest of creating a fairer and efficient system, the Government also plans to announce the simplification or removal of a number of existing tax reliefs in the lead-up to 2024. 

In East Anglia, 20 per cent of businesses believe the Government should prioritise tax cuts or government subsidies for regional companies so targeted support in the Autumn Budget would be well-received.

However, with rising inflation, soaring costs and significant global uncertainty there will be a lot riding on this summer’s consultations as businesses in East Anglia continue to adjust and flex in a bid to grow.

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