Autumn Statement 2018 – Highlights
On Monday the last budget pre-Brexit was announced by The Chancellor of the Exchequer – Philip Hammond. Amongst the many measures destined to steer the economy to a more positive position and encourage growth were some initiatives that relate directly to innovation funding, as a result some of these measures are directly relevant to Leyton’s clients.
R&D Tax Credits – Preventing abuse of R&D tax relief for small and medium-sized businesses (SMEs).
To help prevent abuse of the payable credit, for accounting periods beginning on or after 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. For certain SME’s, this will mean a restricted amount of the R&D claims they can receive in a single year. For genuine R&D companies who need a cash injection, this is not great news. This restriction is likely to apply where an SME has a large proportion of outsourced labour costs. We understand the need to safeguard against fraudulent claims, but it’s not clear at this stage whether a cap is the best approach. The government will consult on this change, Leyton will be involved with this and seek to protect genuine R&D companies’ interest.
The introduction of a UK digital services tax. Aimed at the tech giants; this is not designed to discourage start-ups. Aimed at profitable companies with > £500M worldwide revenue. This applies to revenues generated from the provision of business activities such as search engines, social media platforms and online marketplaces. These companies will be taxed at a rate of 2% on the money they make from UK users. This will be effective from 1st April 2020. This is unlikely to impact innovative start-ups and therefore will have no negative impact on innovation and R&D claims.
Carried forward loss reform will be expanded to include a similar measure that reduces the amount of carried forward losses that can be used in a profit-making year. This is capped at 50% of the chargeable gain from 1 April 2020. A similar concept of deductions allowance is also introduced at £5m to help SMEs to maintain the current Capital Loss relief entitlement. There is further work required to understand how this may interact with existing loss relief reform.
The Annual Investment Allowance will be increased from £200,000 to £1m for two years (for all qualifying investment in plant and machinery made on or after 1 January 2019 until 31 December 2020). This may affect the level of R&D allowances claimed.
From April 2019, the capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6% to align with average accounts depreciation.
Structure and buildings allowance to be introduced. This addresses a long-standing gap in the UK’s capital allowance regime and will help to stimulate capital investment in the UK. This will ensure that expenditure on new commercial structures and buildings will be able to claim relief over time through the tax system. The allowance is designed to be a 2% flat rate on the original building cost, and allows the entire build cost to be claim relief over a 50 year period.
As part of a package of long-term support for research and development to support the Modern Industrial Strategy. This ranges from nuclear fusion, AI to quantum computing. The Industrial Strategy aims to make the UK the most innovative nation by 2030 and help reach the government’s ambition of increasing the UK R&D investment to 2.4% of its GDP by 2027 through this £1.6b increased investment.
The introduction of IR35 to the private sector. The responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker. To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt. HMRC will provide support and guidance to medium and large organisations ahead of its implementation.
Are you unsure on how these changes will affect your business? Get in touch on 020 3384 3964 or visit www.leyton.com and we can explain the best course of action for you to take.