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2020 Budget analysis

As expected, much of the budget focused on measures to contain and reduce the number of people affected by Coronavirus (Covid-19). This has led the Government to quickly allocate funds to counter the effect of the virus by helping medical centres cope with increased demand, relieve the burden on businesses, inject money into the economy and to develop a vaccine. In our view, the budget therefore achieved its main aim to stabilise the economy and inject funds where needed most.

Innovation Tax would like to reassure our valued clients and partners that we are continuing to operate during this difficult time, so that we can extend our support to businesses looking for a cash injection via Government tax incentives and grants. Our staff are all able to work remotely as required, and we can facilitate consultations and enquires via video calls and Skype.

There was good news for companies carrying out R&D, as the Chancellor announced an increase in the Research and Development Expenditure Credit (RDEC) rate from 12% to 13% from 1st April 2020. This is a welcome boost for large companies claiming this important relief for their innovation efforts.

The PAYE Cap proposed in the 2018 Budget effecting SME scheme claims has been delayed for one year, now coming into force from 1 April 2021. In addition, a £20,000 threshold has been introduced allowing smaller owner managed business to continue claiming these vital tax reliefs regardless of the proportion of subcontractors used for qualifying R&D efforts compared to PAYE staff.

The Government further announced a £22bn a year increase in public sector R&D investment, which would place the UK ahead of many other countries as a proportion of GDP, and was required if the Government is to achieve its target of increasing investment in R&D to 2.4% of GDP by 2027. We await further details in the spending review to see the specific details of this investment.

Another notable change, effective from April 2020, was the increase from 2% to 3% in the rate for Structures and Building Allowances (SBA’s). As these were introduced in the 2018 Autumn budget to encourage businesses and individuals to invest in commercial buildings and structures, the tax relief is relatively new and it will be interesting to see the uptake when HMRC publishes its annual statistics.

Managing Director Sachin Chauhan commented; “The Government expressed a strong commitment to R&D in the election manifesto and its great to see that they have followed this up with increased investment, although I was surprised to see no mention of Annual Investment Allowances, which enable businesses to claim 100% tax relief on plant and machinery investments up to £1m. This is due to end on 31st December 2020 and, with no replacement scheme announced for Enhanced Capital Allowances (ECA’s), we would urge the Government to extend this vital tax relief as it helps many businesses to invest and grow”.

We have summarised other measures which were announced in the budget in the following link – Budget 2020