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Budget 2020: Technology Sector Summary

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Stephen Hemmings - Menzies Accountant

Stephen Hemmings – Technology Sector Specialist

On reflection I would say that there were no great surprises for businesses operating in the UK SME technology sector, changes were generally limited and expected. Such companies crave support for investment in innovation.

Two key pillars of this are the tax incentives offered through the Enterprise Investment Scheme (EIS) to investors in scale up businesses,  and also the Research and Development tax credits offered to businesses involved in innovation.

There was no news on the EIS scheme and it is believed that the Government continues to support it.

R&D Reliefs

university graduate cap

There has been limited reform of the R&D relief rules, with the large company RDEC rate increased to 13% (from 12%). The more generous scheme for small businesses remains unchanged. We also saw the announcement of a review into whether R&D relief could be extended to included cloud computing and data integration, which was suggested in election manifestos and is well overdue for many tech firms.

IR35

Looking slightly wider expected changes to the ‘Off-payroll working’ rules (IR35) will target non-compliance with IR35, by making medium and large organisations in the private sector (and third sector) responsible for determining contractors tax status with effect from 6 April 2020. This is relevant to larger businesses. As a sector, technology does use a significant amount of contractors, although they should already be aware of the proposals

For growing tech businesses spending on capital investment there is no extension to the Annual Investment Allowance of £1m past 31 December 2020. This effectively provides 100% tax relief for qualifying expenditure. The limit will reduce down to £200,000 after this date.

Digital Services Tax

manufacturing diagram

Finally, it was confirmed that the UK will definitely be introducing its Digital Services Tax from April 2020. This will be a narrowly targeted sales tax, and it is only envisaged that it will impact companies with sales greater than £500m so is unlikely to directly affect SME tech firms, although they may be impacted should the US choose to impose retaliatory tariffs.

To discuss any of the above or the implications of Budget 2020 on you or your technology business, please contact your Menzies Relationship Partner.

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Stephen Hemmings - FCA

Partner

Stephen Hemmings is a Menzies Tax Partner in our London office specialising in business tax planning. He also heads up the Technology sector team