Today’s Budget introduces a number of measures that could affect innovative and ‘IP-rich’ companies.
A summary of the key points:
- An increase in the rate of the Research and Development Expenditure Credit from 11% to 12% of qualifying expenditure from 1 January 2018, with a view to stimulating increased productivity and growth; and
- Changes to Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) from 6 April 2018 to encourage further investment in knowledge-intensive companies (see Venture capital schemes section).
The Budget also announced some consultations which could lead to further changes and reforms:
- A consultation is to be published on 1 December 2017 with a view to applying a UK withholding tax to royalties paid to persons not resident in the UK, with legislated changes taking effect from April 2019. This is part of a review of ‘Corporate Tax & the digital economy’, in which the Government has set out its intention to apply withholding tax to royalties in connection with UK sales, regardless of whether the recipient of the royalty has a taxable presence in the UK under current rules. The changes are intended to ‘level the playing field’ for international tax by preventing multinationals from gaining an unfair advantage by locating their intellectual property in low or no tax jurisdictions.
- The announcement of a consultation in 2018 on a new knowledge-intensive EIS fund structure, with a view to increasing the flexibility to allow deployment of the capital raised over a longer period.
- The announcement of a consultation in 2018 on the tax treatment of intellectual property, to consider targeted changes to the current ‘Intangible Fixed Assets’ regime with a view to better supporting UK companies investing in intellectual property.
The EIS and VCT changes form part of the Government’s ‘Financing growth in innovative firms’ strategy, whose principal aim is to assist promising innovative companies to access the capital that they need to turn cutting-edge research and new technologies into potentially market-ready products and services. This strategy also involves the establishment of new funds and initiatives to be administered by the British Business Bank as well as measures aimed at unlocking the ‘patient capital’ potential of pension funds. Subject to state aid rules, the changes to EIS and VCT will take effect from 6 April 2018 and will further extend the modifications of these schemes for investment into knowledge-intensive companies.
The ‘financing growth’ strategy also includes changes to the qualifying rules for Entrepreneurs Relief to remove the disincentive to take on external investment. The aim is to ensure that Entrepreneurs Relief continues to encourage long-term investment.