What’s the future of Technology Tax Incentives and schemes?
We’re frequently asked how the future looks for existing Technology Tax schemes (R&D tax relief/credits, patent box, creative sector tax allowances, etc.), given ongoing Brexit issues and the possibility of political upheaval.
In this post, I’ll tackle the Brexit question
Well, how long is a piece of string? Brexit has already taken much longer than anyone expected, and we’re still part of the EU. The short answer is: no one knows what impact Brexit will have on the UK’s Technology Tax legislation. That’s mainly because it hasn’t happened yet. But there are some strong indicators of its likely impact.
First thing to note is that these tax incentives are not EU incentives. They’re UK incentives, operated by HMRC. So it’s unlikely that they would end, or be modified, as part of Brexit negotiations.
But the incentives are limited in their generosity, as part of the EU’s state aid regime. The EU’s state aid regime is a set of rules limiting the amount of aid each member state is able to give to companies or industries. It helps maintain a level playing field across the EU, and reduces the scope for EU countries to unfairly compete against each other to attract companies.
Will the UK continue to be bound by the EU state aid regime going forward? If there is a transition period with the EU, then yes the UK will remain within the EU’s state aid regime during this period. After that, it’s a matter for the negotiators. The UK may agree to observe the EU state aid rules beyond the implementation period, or it may not.
“Will Brexit allow the UK the possibility to make these schemes more generous or will the UK still be bound by EU state aid rules?”
If the UK doesn’t follow the state aid rules, that opens up the possibility of making the schemes more generous: higher benefit rates, broadening the types of expenditures that are eligible, or diversifying the types of R&D that are eligible.
In summary, no one knows exactly what the impact of Brexit will be on the technology tax incentive schemes but it’s unlikely there will be any significant changes in the next few years as a result of Brexit negotiations.
If you’re wondering if a future Labour government will scrap the tax incentives altogether… we’ll be back next week with our follow-up post on that particular topic.
If you have any questions or comments on this article, please get in touch or to speak directly and confidentially to a consultant, call us.
Alexis is one of the founding Directors of MMP Tax.
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