With this week’s Budget announcement, many are looking at what this means for Scotland, and Tayside and Fife in particular. Andrew McMillan, Innovation Taxes Director at Johnston Carmichael, breaks down why it could be good news for the area.
After days of trails and strategic leaks, there were few surprises in the Chancellor’s Red Book.
Addressing the House of Commons, Rishi Sunak said he wanted to be “honest” about the scale of the challenge as the economy seeks to recover from the catastrophic impact of Covid-19. But even as he increased corporation tax to repay record peacetime borrowing, he also offered critical lifelines, aimed at securing investment and making the UK competitive on the world stage.
As expected, support for innovation was at the heart of the Budget, with the Chancellor stating his intention for the UK to be a “scientific superpower”.
As part of that, a wide-ranging consultation has been launched to ensure the UK’s research and development (R&D) tax reliefs remain internationally competitive and fit-for-purpose in today’s environment. Its remit will consider the definition of R&D, what qualifies for relief and whether this remains fit-for-purpose.
It will also look at how the relief should be targeted in the future, the merits of consolidating the existing SME and RDEC schemes, the future scope of eligible expenditure and the process for making claims.
This review is very welcome. We know how important R&D tax relief is in supporting innovation for so many of our clients. However, there are many areas in which the regime could be improved. For example, extending the relief to capital expenditure on specialist R&D equipment or rental payments to hire essential R&D facilities.
Also welcome are plans to review the role and responsibilities of R&D agents in the claim process. Taking a ground up look at the claim process and ensuring the correct controls are in place will protect companies from being misled and protect the long-term viability of this important relief.
Although the consultation does not specifically mention Video Games Tax Relief, supporting documents suggest there is support for activities typically undertaken by the creative industries to be brought within the scope of R&D relief.
There are already a group of tax reliefs, of which VGTR is one, focused on providing tax relief to the creative industries. Options could include abolishing these in favour of one unified scheme or offering more extensive R&D tax relief to complement the incentives already available to the creative industries.
Whatever the outcome, I would hope that the excellent work undertaken by industry bodies and the British Film Institute to highlight the relief available to video games development companies doesn’t go to waste and that any revised scheme is successful in promoting the continued pipeline of world leading content produced by UK games companies, many of them located right here in Dundee.
While not directly related to Dundee, the announcement of £27m of funding for the planned Aberdeen Energy Transition Zone, which aims to transform the area into a hub for cleaner energies such as offshore wind and hydrogen, could be good news for the city.
Dundee is already at the forefront of the green technology revolution in Scotland, with the creation of the Michelin Scotland Innovation Parc (MSIP), which was established to provide a platform for innovation in the areas of sustainable mobility and decarbonisation. One would hope that the new funding will lead to pioneering collaboration between the two cities in the months and years ahead.
Dundee could also be in line for a green port – the Scottish Government’s mooted adaptation of the English freeports announced in the Budget – supporting green jobs and sustainable growth.
It’s notable that the Government has released a call for evidence in relation to the Enterprise Management Incentives scheme. Given the Budget’s focus on investment-led recovery, some mention of SEIS, EIS or Venture Capital Tax Reliefs may also have been expected.
Nevertheless, with wider plans to stimulate the progress of start-up and scale-up entities, the prospect of implementing some reform of the EMI scheme to ensure it is completely fit for purpose presents a huge opportunity.
Although it is surprising that, there is no mention of the Seed Enterprise Investment Scheme, Enterprise Investment Scheme or Venture Capital Tax Reliefs, there may be some further announcements on or before “Tax Day” – on 23rd March 2021.
For more information, visit the Johnston Carmichael website.
