What does the short term future hold for companies and customers now that we know the outcome of the Brexit vote?
Since CT was reduced from 52% to 20%, tax receipts have actually risen five-fold. Did the lower tax rate stimulate growth or was that going to happen anyway, despite the reduction? Either way, abandoning the plan to achieve a fiscal surplus by 2020 will surely stimulate the economy.
The smart money is definitely on a reducing headline figure for CT, which is good news for business and the economy.
R&D tax relief is an economic lever designed to reward companies investing in technology, which gives the UK a competitive edge. Currently, it costs £1.7bn a year.
When interviewed by the FT the former business secretary, Sajid Javid, laid out his five point plan for emergency tax cuts: one of them was doubling the rate of R&D tax relief.
Now, as the UK’s leading provider of R&D tax relief support, you might think that would please me, but not so.
R&D tax relief is an unregulated market. And we know what happens when you over-use economic levers in unregulated markets to stimulate the economy. As R&D tax relief rates rise, we are predicting increased regulation by HMRC.
Similarly, the advanced assurance scheme for R&D tax relief claims is designed to get companies to catch themselves out. That’s a smart way to handle regulation.
I think there will be some movement on the rate, but combined with a drop in the rate of corporation tax, it is likely we will see R&D tax relief rates rise from 230% to around 300%.
It doesn’t take a genius to work out that Brexit is going to have a negative impact on European grant funding. But that will take time.
We predict there will be a tightening of the funds available. This may be the driver for improving the economy through a reduction in CT and an increase in R&D tax relief allowances.
At the same time, there should also be a relaxation of the rules on state aid now that Europe no longer pulls these strings. We think it likely that the R&D tax relief rules will change significantly to compensate.
So yes, on balance, I’d say the post-Brexit outlook is rather good.