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Budget 2021 predictions: Technology

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Whilst the pandemic has been challenging for most businesses in the sector, as it has across the wider economy, some technology businesses have flourished in the changing environment whilst generally the sector is more agile and more able to adapt to change than traditional businesses.

Going forward we anticipate key challenges to centre around the ability for growing technology businesses to continue to attract investment in a fragile economy, and also to bring in and retain the best staff from around the world in a post Brexit environment.

Recommendations

We do not necessarily expect to see any significant changes announced in the March Budget but would welcome positive changes in the following areas;

Tax incentivisation for investment in innovative businesses

The Enterprise Investment Scheme (EIS) has provided a very useful means of securing investment for early stage technology businesses. In order to ensure the funds continue to flow we would encourage an increase in the level of tax relief offered to individuals investing under these rules for a limited time. Perhaps increasing the income tax relief available from 30% to 50% (in line with the Seed version of the scheme).

Loan financing

The Government should do more to encourage banks to support fledgling technology companies, often still in the development phase of their business with flexible short term borrowing. There are already a number of COVID incentives but we feel a more permanent and directed approach is needed for this sector. We would welcome any further announcement in this area.

Research and Development tax relief

This scheme provides companies with tax relief for innovation, and encourages specialised development activities. A key facet is the ability to reclaim the tax credit as cash from HMRC where the company has yet to generate profits. In the past the rate of relief was restricted by EU state aid rules. We would welcome an increase in the rate of relief to a level that stood the UK apart from the rest of the world as a place that actively sought to become a centre of excellence for technology.

Attracting talent

Post Brexit we would recommend that the government carefully considers the detail of its immigration policy, to ensure that there are not administrative barriers in place which restrict the ability of UK technology companies to attract highly skilled workers.

Online sales tax

There have also been clear indications that the Government is seeking a way to impose a higher level of taxation on the technology giants. Most recent speculation has focussed on an online sales tax, perhaps even as a one off to fund part of the current economic deficit caused by COVID.

We would recommend that this is carefully thought through, ideally through a coordinated international strategy. As such we would not necessarily expect any detail on this on March 3rd, but perhaps a significant announcement in the Autumn Budget.

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