Budget Red BoxOn reflection, I would say that there were no great surprises for businesses operating in the UK SME technology sector, changes were generally limited and expected. Such companies crave support for investment in innovation.

Two key pillars of this are the tax incentives offered through the Enterprise Investment Scheme (EIS) to investors in scale up businesses, and the Research and Development tax credits offered to businesses involved in innovation.

There was no news on the EIS scheme and it is believed that the Government continues to support it.

R&D Reliefs

There has been limited reform of the R&D relief rules, with the large company RDEC rate increased to 13% (from 12%). The more generous scheme for small businesses remains unchanged. We also saw the announcement of a review into whether R&D relief could be extended to include cloud computing and data integration. This was suggested in election manifestos and is well overdue for many tech firms.


Looking slightly wider expected changes to the ‘Off-payroll working’ rules (IR35) will target non-compliance with IR35. It will make medium and large organisations in the private sector (and third sector) responsible for determining contractors’ tax status with effect from 6 April 2020. This is relevant to larger businesses. As a sector, technology does use a significant number of contractors, although they should already be aware of the proposals.

For growing tech businesses spending on capital investment there is no extension to the Annual Investment Allowance of £1m past 31 December 2020. This effectively provides 100% tax relief for qualifying expenditure. The limit will reduce down to £200,000 after this date.

Digital Services Tax

Finally, it was confirmed that the UK will definitely be introducing its Digital Services Tax from April 2020. This will be a narrowly targeted sales tax, and it is only envisaged that it will impact companies with sales greater than £500m so is unlikely to directly affect SME tech firms, although they may be impacted should the US choose to impose retaliatory tariffs.

For further information please contact Stephen Hemmings, partner at Menzies LLP on 020 7465 1968 or email [email protected]

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