Tax relief for data and cloud, digital skills for SMEs, more IT firepower for HMRC

by Joseph K. Clark

Chancellor Rishi Sunak has announced several measures relating to the technology sector as part of the government’s spring Budget, focused on areas such as digital skills, new visas for highly-skilled entrepreneurs, and new IT funding to improve tax collection, as well as the possibility of bringing data and cloud costs into the scope of tax relief for research and development (R&D).

In his 2021 Budget, Sunak said the investment is key to making the UK economy more productive – and improving the technology, infrastructure, and skills people need to produce goods and services is core to that plan. Alongside the Budget, the government also released its Build back better growth plan, aiming to achieve economic recovery based on the investment pillars of infrastructure, skills, and innovation.

Tax relief

Among the Budget measures related to technology is an investment boost for HM Revenue & Customs (HMRC), which will get £180m in extra funding in 2021/22. The additional IT investment is intended to bring in over £1.6bn of additional tax revenues between now and 2026, with new systems aimed at, among other improvements, making it easier for citizens and businesses to pay tax, as well as widening the department’s ability to detect non-compliance and digitizing business rates.

In addition, plans to review R&D tax relief was announced, with a consultation launched alongside the Budget, intended to ensure the UK remains a competitive location for research. As part of this exercise and alongside several other policy options and priorities at the more comprehensive review, the government will consider bringing data and cloud computing costs into the scope of relief.

The government said that the UK’s poor productivity performance is due to the low diffusion of technology, which is one of the issues it wants to tackle. ACCORDING TO THE GOVERNMENT, the UK has “relatively low adoption” of digital tools and software compared to other developed countries, and that is particularly true among small and medium-sized enterprises (SMEs).

To tackle the digital skills gap among SMEs, Sunak announced Help to Grow Digital, a program to be launched in autumn 2021 to support 100,000 SMEs becoming more productive and profitable by adopting productivity-enhancing software that improves the way they operate. In addition, the initiative foresees a 50% discount on the cost of such tools, worth up to £5000.

The government sees new, technology-based companies as a “key driver of future growth” for the UK when it comes to startups. It acknowledged that such firms account for only 1% of all businesses in operation nationwide but said they add £1tn to the UK economy and represent most net employment and output growth.

Measures to support startup growth outlined in the Budget include Future Fund: Breakthrough, a £375m fund to support innovative, R&D intensive businesses, in addition to a UK Infrastructure Bank based in Leeds with £12bn of equity and debt capital to back local authority and private sector infrastructure projects nationwide, as well as the scheme to equip SMEs with digital skills.

This year’s Budget also brings visa reforms to modernize the UK’s highly skilled migration arrangements, focusing on areas such as technology, science, research, and academia. “A scientific superpower needs scientific superstars,” Sunak said.

The visa review includes the introduction of a points-based visa in March 2022 with a stream aimed at fast-growing startups, whereby professionals with a job offer from UK scaleups will be able to qualify for a fast-track visa. Other initiatives relating to tickets include reviewing the innovator visa to make it easier for prepared entrepreneurs to set up a business in the UK and obtain a permit.

In the Build back better growth plan, measures that had been previously announced, such as the launch of the Advanced Research & Invention Agency (ARIA), are outlined as part of a list that reiterates the government’s focus on innovation agenda as part of its economic recovery plan.

The initiatives cited in the plan that relate to technology aim to help businesses scale up and remove barriers to business investment and remove hurdles to the development of new ideas and technology spreading. To that end, the report outlines actions such as the intention to apply the recommendations in the Kalifa Review of the UK fintech sector to unlock innovation in financial services and support for regulatory sandboxes and innovation hubs in regulators.

Moreover, the report cites the UK government’s intentions to use regulation to speed up the development of areas such as regulatory technology (regtech), with UK business regulation, converted into machine-readable data to drive the growth of regtech apps. It also mentions measures to boost competition, such as the ongoing establishment of the Digital Markets Unit at the Competition and Markets Authority (CMA).

Julian David, chief executive of tech trade organization TechUK, welcomed the measures announced in the Budget, noting that the plan addresses the “urgent need” to drive business investment in the aftermath of the pandemic.

The trade body particularly welcomed the digital skills initiative for SMEs, noting this is a scheme it had called for and that research by TechUK and its members show this type of support is in high demand and the visa reforms.

Commenting on the “super deduction” announced in the Budget – which will allow companies to cut their tax bill by up to 25p for every £1 they invest, which should be popular with manufacturing, construction, and utility firms – David said this should also apply to the tech sector.

“We would strongly encourage that these schemes, including the super deduction, apply to the needs of modern businesses who increasingly rely on intangible digital investments in cloud computing, data, and AI tools to boost growth,” he added.

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