Budget: EY's head of tax comments on R&D investment

Gareth Anderson, EY’s head of tax in the Thames Valley & South, commented: “The Thames Valley is known as the Silicon Valley of Europe, so the Chancellor’s announcement that he is set to increase R&D investment to £20 billion, contributing 2.4% to GDP, is great news for regional businesses.

Nationally, the chancellor in his speech quoted criticisms of the Entrepreneur’s Relief (ER), noting concerns that ER was only encouraging one in ten entrepreneurs to start up. However, the original aim of the relief was instead to encourage those successful entrepreneurs to stay in the UK and pay tax on their success, and then to reinvest and continue to contribute to the UK’s growth.

“Perhaps in light of this, the chancellor chose to return the reliefs limit back to the £1m, the limit when it was introduced in 2008. This will be a help to many entrepreneurs but, in today’s environment, this may not be effective in seeking to retain the more successful. Those arguing for the limit to be made per investment, rather than per life, and hence to reinforce serial entrepreneurship, will be disappointed.

“The chancellor will be hoping that removal of this allowance for the most successful will not encourage them to leave the UK thereby paying no tax, hence losing the 10% they would otherwise have paid and costing the Exchequer rather than filling the coffers.”

However, the corporate tax rate, that was due to be reduced to 17% on April 1 will be abandoned, remaining at 19%. By the end of the fiscal period, this gives the Government £7.5b of extra funds per annum to spend elsewhere.

“Many may be disappointed that the chancellor hasn’t let the rate cut go forward for at least one year, given the challenges that will be faced in 2020/21 by businesses, be that from covid-19, Brexit, oil price fluctuations or indeed share price fluctuations.”