Spring Budget 2023: What It Means For Technology

Insights into the Impact of the Spring Budget on UK Technology

 

From tax breaks and enhanced allowances for business technology to increased investment in improving computing, research and development in the UK, this year’s Spring Budget has been hailed as the most pro-technology and science budget to be announced since the 1960s.

 

The UK has long been a leading location for digital and technology companies to develop innovation and do business. The technology industry within the UK adds £150 billion to the economy each year and employs 1.7 million people. However, it has been highlighted that further investment within technology is required in the UK for us to remain at the forefront of technological innovation. With new, powerful developments and innovations, such as AI and recommendations to fulfil the UK’s ambition to be a science superpower being outlined in Sir Patrick Vallance’s new report, the government has committed funding to unlock technological progress in the UK.

 

From technical jargon to complicated explanations, there is a lot to take in when trying to understand how UK businesses will benefit from this enhanced investment in technology that has been outlined in the budget – so we’re going to break it down.

 

New Capital Allowances and What They Mean

 

 

In the words of Julie Andrews – let’s start at the very beginning. Before we jump into the main changes for technology that has been outlined within the budget, it’s important that we understand key concepts, such as capital allowances, changes to corporation tax and Full Expensing, as they are key trigger points for change within the Spring Budget, when it comes to technology and business.

Let’s take the bad news first – the rise in Corporation Tax. The Chancellor announced that Corporation Tax will rise from April 2023, from 19% to 25% and is applicable to businesses earning more than £250,000 in profits. It’s estimated that only 10% of UK businesses would have to pay this 25% rate and the Chancellor has announced a scheme that will allow organisations to reduce the amount they pay, if they invest in their businesses.

 

Capital allowances are a type of tax relief for businesses that allow them to deduct some or all of the cost of an item from its profits before paying tax. There are different types of capital allowance including:

 

• Annual Investment Allowance: which allows businesses to claim 100% of the cost of plant and machinery up to £1 million in the year in which it is incurred.
• First-Year Allowances: which allows a company to claim a percentage of the cost of plant and machinery investments in the year it is incurred.

 

Full Expensing (FE) is a 100% First-Year allowance, which allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure in the year that expenditure is incurred. Simply put, it allows businesses to deduct 100% of the cost of certain plant and machinery from their profits, before tax. This will become effective from 1st April 2023 to 31st March 2026 – with the view to making it permanent, if fiscal conditions allow. FE is applicable to expenditure on main rate equipment, which includes machinery, such as IT equipment. These, capital allowances reward businesses that invest and create the right conditions for sustained economic growth.

 

Furthermore, the Annual Investment Allowance for businesses has been increased to £1 million. This means that 99% of all businesses can deduct the full value of their investment from that year’s taxable profits. This new investment allowance means businesses will be able to deduct investment in new machinery and technology to lower their taxable profits immediately.

 

What Technology is Covered Under Full Expensing?

According to the UK Government website, ‘plant and machinery’ is an umbrella term for ‘items that you keep to use in your business.’ Examples of items that do NOT count as plant and machinery include:

• Items you lease – you must own them
• Items used only for business entertainment – such as a karaoke machine
• Land
• Structures – for example bridges, roads and docks
• Buildings, including doors, gates, shutters, mains water and gas systems

 

If the technology is classed as ‘special rate’ expenditure – i.e. doesn’t qualify for full expensing – a 50% first-year allowance can be claimed instead. This means that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that the expenditure incurred.

 

For a full breakdown of what technology and solutions you can and cannot claim on full expensing, we recommend consulting your accountant or financial advisor before making new purchases for your business.

 

New Tax Credits for R&D Technology

 

Enhanced Research & Development tax credits will be available for technology companies who spend heavily on research. This support is targeted specifically at research and development-intensive SMEs, where at least 40% of their total expentidture is spent on research and development initiatives. Eligible companies will be able to claim £27 from HMRC for every £100 spent. These new tax credits will be implemented from April 2023. The government estimates that around 8000 businesses could benefit from these tax credits.

 

Businesses in life science are likely to benefit greatly from this initiative and the tax credits will support the development of life-saving medicines. Further industries to also benefit will include pharmaceuticals and creative industries. Around 4000 digital SMEs to benefit from tax credits will be computer programming, consultancy and other related activities, as having access to tax credits for technology and machinery will support the development of AI, machine learning and other digital-based technologies. Around 3000 manufacturing firms and 3000 professional, scientific and technical activities firms will also qualify for enhanced support. As you can see, there are so many opportunities for technological innovation that will be opened up by these new technology tax relief initiatives.

 

Combining the government’s spending on Research and Development with the support from tax reliefs, the total UK Research and Development support as a proportion of GDP is forecast to increase to approximately 1.0% – a significant increase from approximately 0.9% reported in 2019. Government figures suggest that, if well supported, the sector could generate a further 678,000 jobs by 2026 and add an additional £41.5 billion to the UK economy.

 

Supporting Digital Technologies

 

Chief Scientific Advisor for the UK Government, Sir Patrick Vallance, published a report into the regulation of emerging digital technologies, which highlights areas where the government can ensure that our laws and regulations enables innovations and a thriving digital economy. From improving the regulations surrounding applications of AI to promoting openness of public data and accelerating legislation to bring forward the future of transport, this report could provide the key to unlocking technological progression throughout many sectors within the UK.

 

The report made clear that further investment is required within infrastructure for research and innovation and more powerful computing capabilities are an essential component to the UK fulfilling its ambition of being a science superpower. As it stands, our most powerful supercomputer ranks just 28th in the world. The UK’s AI community has immediate requirements for large-scale, accelerator-driven compute to remain internationally competitive.

 

The Government is planning to invest (subject to the usual business case processes) in the region of £900 million to build an exascale supercomputer and establish a new AI Research Resource with initial investment starting this year. An exascale computer can be used for training complex AI models, as well as a wealth of other uses across science, industry and defence. Investment in such technology will provide significant compute capacity to provide access to cutting edge computer power. Recent developments, such as the launch of ChatGPT and the announcement of Google Bard have shown the powerful potential of AI technology. In real-life applications, AI has the power to fuel more accurate, intelligent and innovative processes, including allowing researchers to better understand climate change, enabling the modelling of weather forecasts and more.

 

Leading the Way – The Forefront of Science and Engineering

 

All of the initiatives that have been outlined in the Spring Budget have been welcomed by experts in science and technology. However, one thing we know for certain is that this is just the start and there is more that needs to be done. This can only be the beginning of the Government prioritising investment in UK technology.

 

The Government is committed to supporting the progress of technological innovation within the UK, through a series of projects that aim to ensure the UK is at the forefront of technologies, particularly Artificial Intelligence. A £1 million prize will be presented by the government every year for the next 10 years to researchers who drive progress in critical areas of AI. Furthermore, a total of £2.5 billion will be invested by the government over the next 10 years – focussing on the realisation of four goals that ensure the UK is home to world-leading quantum science and engineering:

 

• Supporting businesses through innovation funding opportunities
• Providing access to world-leading research and development facilities
• Driving the use of quantum technologies in the UK
• Creating a national and international regulatory framework

 

Amongst other projects that will further progress UK technology, the government is also committed to lead on the regulation of AI and on the future of the web technology known as the Metaverse or Web 3. The aim will be to maximise the potential of the metaverse and accelerate UK growth and innovation, as well as empowering individuals to influence how their data is used to reduce risks to privacy and security concerns.

 

From healthcare to advanced technological solutions helping us to save the planet, the commitment shown from the Government in the Spring Budget looks to be a positive step in supporting UK technology and businesses within the sector.

 

Get Your Business Ready For the Future with Elite Group

 

Technology is advancing quickly – don’t let your business get left behind! From moving to the cloud to making the switch to VoIP telephony, now is the time to start the digital transformation of your business. Making the move to digital technology will allow your business to take advantage of any new innovations that emerge, as well as provide the tools your team need to ensure the best possible experience for your customers. Whether you need advice on where to start upgrading your business technology or are unsure on the right solutions for your business, our team of specialists are here to help. Contact us today by clicking here to fill out our form or call 0344 875 8880.

 

We’re ready when you are!

Article Sources

Spring budget 2023 Media Factsheet

Business Leader

Spring Budget 2023 – Full Expensing

Pro-Innovation Regulation of Technologies Review: Digital Technologies