“The world is on the brink of a technological revolution”: Phillip Hammond acknowledged in this year’s Budget. He says the Government is committed to embracing this change and there were certainly some positive messages for tech businesses to take from the announcements.
“The Government announced a 10-year plan to unlock £20 billion of funds for start-up businesses”
In particular, investment in R&D will continue to be encouraged, with the aim of increasing this to 2.4% of GDP. The ‘above the line’ Research and Development tax credit for large companies will be increased from 11% to 12% of qualifying expenditure.
Unlocking startup funds
In its response to the Patient Capital Review, the Government announced a 10-year plan to unlock £20 billion of funds for start-up businesses, including the creation of a new £2.5 billion investment fund to be incubated in the British Business Bank (and eventually floated or sold), an increase in the individual EIS limit to £2 million where at least £1 million is invested in ‘knowledge-intensive’ businesses, along with an increase in the annual EIS/VCT investment limit for such companies from £5 million to £10 million.
However, as always, accompanying the positive changes were a series of measures designed to protect the UK tax base. For example, along with the raising of EIS limits mentioned above, there will be a new condition attaching to the relief which is designed to make sure investors are really risking a loss of capital.
More fundamentally, the paper “Corporate Tax and the Digital Economy” discusses how the UK can, in co-operation with other jurisdictions, bring taxing rights into the digital age. The main point of discussion is a move to taxing value generated from ‘users’ of an on-line service (such as a social media platform or on-line market place) rather than just taxing the decision making operations and/or assets and rights of a business.
The long-term aim is to develop such a system through international co-operation, but as an interim measure the UK plans to introduce a tax on revenues generated from digital businesses in the UK, the scope of which is up for discussion.
In addition and as part of these digital measures, there will be a couple of more imminent changes:
– the introduction of a withholding tax on royalties paid in connection with sales to UK customers to a business in a no or low-tax jurisdiction (where the royalties are paid between two overseas businesses); and
– bolstering the joint and several liability for VAT for on-line market places and a requirement to display sellers’ valid VAT numbers – an attempt to further crack down on VAT evasion which has been prevalent in on-line selling.
Comments on the paper are invited until 31 January 2018, so do read it and have your say if this could affect your business.
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