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Haines Watts Leeds Phone icon 0113 398 1100

Since the appointment of our new Prime Minister, there’s understandably been a lot of speculation about new policies and his approach to improving the UK economy.

In the wake of Brexit and the uncertainty surrounding a no-deal departure from the EU, it’s promising to see that Boris Johnson has outlined his ambitions to reinvigorate the UK economy through research and innovation. Though there are few specific details, the new Prime Minister did go so far as focusing on a number of key sectors such as green energy and space science in his inaugural speech.

As the UK enters the so-called ‘Fourth Industrial Revolution’, how can Borris give UK innovation the kick-start it so very needs?

The UK’s R&D challenge

As part of its Industrial Strategy, the Government imposed an ambitious target of increasing R&D expenditure to 2.4% of GDP by 2027. Such spending would undoubtedly help to transform the UK economy, with the benefits resonating across all sectors. Unfortunately, the Confederation of British Industry (CBI) recently found that we are currently way behind this target and at our current pace of spending we won’t reach 2.4% till 2053.

There’s a complex mix of factors at play here, from direct innovation support to skills shortages. Whilst there’s no quick answer, it’s important that policy and funding keep up with the pace of innovation. One such change could be through the current R&D tax incentive system.

In light of the UK’s exit from the EU, there could be an opportunity to improve our R&D tax incentive system. The UK is currently bound by EU State Aid rules which can reduce the value of R&D tax claims for businesses that receive other innovation-supporting aid. Post-Brexit, the Government could determine exactly how it wants to administer R&D tax schemes with no restrictions from the EU.

Hypothetically, the UK could provide further and more generous support to innovative companies without needing to abide by EU rules. But this is purely hypothetical.

Ironing out R&D tax incentive issues

The current delays to the processing of R&D tax claims are causing significant issues to SMEs who use the tax incentive as a form of inward investment. Currently, some companies are having to wait up to three months before receiving their tax credit. Many of the clients I speak to say this is having a knock-on effect on business plans, cash flow, and the funding of innovation. The UK can’t afford setbacks like this if it seriously intends to reach its 2.4% target.

Thankfully, HMRC has outlined a recovery plan to resolve the issue which will hopefully bring the processing of claims back within the promised 28 day turnaround period.

A report from the Coalition for a Digital Economy (COADEC) has also found that tech start-ups have struggled to understand the application process, leading to a call for more guidance on how to claim. Early-stage companies, in particular, do not have the resources or expertise to assemble a claim let alone wait prolonged periods of time to receive their cash benefit.

The UK needs a seamless R&D incentive system if we are to cement our position as a world-leading, hotbed of innovation.

People & training

Innovation is ultimately dependent on people. Therefore, educating and training people with the technical skills which enable innovation is critical.

The STEM skills shortage has been a hot topic for several years now. Last year, research conducted by STEM Learning revealed that 7 out of 10 businesses found it difficult to hire staff with the required STEM skills. At a time when almost half of STEM businesses are looking abroad to find people with the right skills, the UK’s exit from the EU could provide another hurdle if not handled correctly.

Scientists and research leaders have been vocal about their fear of a no-deal Brexit. Many have expressed concerns over the UK’s ability to take part in the EU’s flagship research and funding programme, Horizon Europe, and the impact an abrupt exit would have on travel, recruitment, and collaboration. It’s imperative that the Government addresses these concerns.

It’s worth point out that Boris has promised a new ‘fast-track system‘ to attract the best and brightest to the UK. His plans to lift the number of ‘exceptional talent’ visas and make it easier for foreign scientists, researchers, and engineers to settle in the UK will give some solace to research-intensive businesses.

Simply put, there is a need for more gifted minds in a post-Brexit world whether that’s through better training here or attracting people from abroad.

Regional focus 

In his first speech to parliament, the new Prime Minister talked about ‘unleashing the productive power of the whole United Kingdom.’ The Northern Powerhouse, which turned five years old in June, has and will continue to be important in helping to drive innovation and investment in northern cities. After all the headlines, it has helped to bring new opportunities to the North.

Regional innovation districts and research hubs are pivotal to the future of the knowledge economy. Newcastle Helix is a prime example of how we should be looking to bring together industry leaders, universities, businesses and top researchers through innovation communities. There are some outstanding universities and research institutions in the North, and fostering talent through university incubators and accelerators should be a priority.

At the same time, the ‘brain drain’ caused by graduates moving to London and the South remains a big hurdle for many innovative businesses. In the North East and Yorkshire, it’s estimated that 40-44% of graduates move to London after graduating. At the end of the day, these graduates will be driving innovation in years to come and actionable solutions need to be put in place to retain talent in the North.

R&D in a post-Brexit UK

Brexit or no Brexit. Deal or no deal. There is a need for the UK to invest in research and kick-start innovation. It is only through innovation that we can tackle the big challenges facing by our society: aging populations, climate change, renewable energy, artificial intelligence, and transport to name but a few.

With the current uncertainty surrounding Brexit, it is vital that the UK cements its position as an attractive place to invest in R&D. The UK must be at frontier when it comes to supporting and promoting innovation.

Want to know more? Call us on 0113 398 1100 or email leeds@hwca.com

About the author

Jonathan Scott

Having joined Haines Watts as an apprentice, Jonathan quickly progressed through his AAT, ACA and CTA exams to become a Technical Tax Consultant. His success in specialist tax planning led to his promotion to Tax Partner in 2016, making him the youngest partner in the Haines Watts network to date. With a detailed understanding of tax planning, he provides tailored and proactive advice to clients to ensure they are structured in the most efficient way whether they are preparing for income tax returns; corporate re-organisations; company sales, mergers and acquisitions; inheritance tax or capital gains tax.

Jonathan has developed a particular specialism around research and development tax relief, advising clients how they can secure corporate tax credits through the development of innovative products and services.

Jonathan and his team have claimed back over £27m in R&D tax credits for innovative companies, as well as achieving a further £140m in total enhanced tax deduction. In this time, he’s worked with over 200 businesses, ranging from architects, digital agencies and engineers, to vets, manufacturers, and breweries.

Away from work, Jonathan – who was nominated for the Young Accountant of the Year in the 2015 North East Accountancy Awards – enjoys playing football and golf and walking his dog.

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