So, today, I won’t reflect long on the need for HMRC to simplify and massively refocus and enhance its core tax relief processing and compliance processes. We will keep pressing on these points with HMRC. Today is about the wider challenges that UK businesses face and our passion around the continued importance of innovation investment, even when the economic situation is so volatile, and challenging. I also want to push the simple but important message that this is a good time to be seeking an optimal tax strategy and to claim the full R&D tax relief to which your business is entitled.
In the immediate aftermath of last week’s Budget announcements, business groups broadly welcomed the Government’s policies as pro-business. The Director General of the CBI commented that it was a “pro-growth” Budget and “turning point for the UK economy”, while the British Chambers of Commerce assessed that the budget “should boost economic growth, relieve cost pressures and encourage investment”. Corporation tax was maintained at 19% which will simplify tax management and put back around £21billion into the hands of British businesses and energy prices were capped; the headline picture looked promising.
However, the markets have taken a different perspective, punishing Sterling and UK Bonds with a massive sell-off. Their reaction reflects a lack of confidence in the ability of the new Conservative leadership to balance the cost of increased government debt, with the positive impact of business-led growth and the higher tax take that may result in the mid-term. The market, and perhaps even the IMF, just don’t believe that the UK can pull off such a radical economic policy, that for many commentators defies conventional wisdom, as the UK bets the house on free-market enterprise-driven growth, stimulated by deregulation and lower taxes.
I am not in the business of mid-term economic predictions, nor will I comment on personal tax, but I can tell you that when talking to many of our customers, who run businesses in nearly every industry and region in the UK, the story is similar. Across the board companies are facing rising costs, even with the welcome energy price caps, labour and talent shortages, continued raw material and logistics challenges, higher costs for imported goods and services, and now a huge potential rise in the cost of capital as interest rates are set to spike in response to Sterling weakness. When these factors are combined with the growing and real difficulties in claiming the R&D tax relief to which they are eligible, for many the temptation may be to batten down the hatches, reduce innovation-focused spend, take less risk and not claim the tax relief which is due to them.
