Reflecting on the Budget

Whilst this is usually quite welcome news, as it means that tax professionals and taxpayers alike do not have to grapple with a new set of tax rules, this year I was left a little disappointed…

Allow me to explain. I am by no means someone who enjoys trawling through the annual (or sometimes more frequent) changes in tax legislation in order to mitigate risks and ensure compliance, unless it involves providing opportunities to my clients.

However, given our quite tenuous economic situation following COVID-19 and all the Government spending, grants and loan schemes, I would have thought that the Chancellor would have taken the opportunity to bolster certain areas which are seen as key to the continued growth of the UK economy.

Missing from the Chancellor’s announcements was any relaxation of the limits applying to venture capital reliefs such as the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and the Venture Capital Trust (VCT) scheme. Now that the UK is no longer a member of the EU, the requirement to comply with EU State Aid thresholds no longer applies, providing scope for the reform of these complex and restrictive reliefs.

More notable than the above, was the omission of any increase in the rate of the Government’s Research and Development (R&D) Tax Relief scheme. In its most generous guise, this provides a 33.35% repayable tax credit for each £1 of qualifying spend. This relief is seen as key to enticing foreign enterprises engaging in science and technology innovation to set up in the UK. Whilst they can benefit from the tax relief on offer, they would bring much needed employment and other capital investment into the UK, which helps drive the economy and further the Treasury’s tax take. Win, win.

Another generous relief which saw no planned increase, and one which is close to my heart, is the Video Games Tax Relief (VGTR) scheme. Providing an effective 20% tax credit, this would have been a prime contender for a much needed boost, especially given the unprecedented growth that the video games industry has been experiencing in recent years (see my previous blog).

In fact, none of the creative tax reliefs (e.g. Film Tax Relief, High-End TV Tax Relief, Animation Tax Relief, etc.) saw a hike in the prescribed rate of relief, which seems nonsensical given the UK’s unique position to steer away from the shackles of EU State Aid rules.

Against the backdrop of the Government’s focus on growth and innovation, changes to reliefs such as EIS, SEIS, VCT, R&D and VGTR would have made a lot of sense. Investors, businesses and tax professionals alike will therefore be disappointed by this missed opportunity.

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