After a year of economic disruption, the 2021 Spring Budget was eagerly anticipated – not least by the burgeoning UK tech sector, which has achieved record levels of early stage investment over the last year. For many tech companies, the Budget introduced a raft of measures aimed at reducing barriers to growth and setting the UK up as a global player in the industry. We have picked out some of the key points that tech businesses and entrepreneurs should be aware of and consider taking advantage of.
1. Fast-track visa scheme
The UK has already taken steps to cement itself as a hive for tech industry talent with the Government announcing funding support for the world's first artificial intelligence (AI) and data science conversion courses in 2020. They have doubled down on their support for developing the UK tech industry in the Budget with a new visa scheme that aims to remove burdensome administrative requirements for applicants to tech scale-ups. With many fearing a post-Brexit "brain drain", such policies will ensure the UK continues to rival the biggest international players and maintain a dominant position in the tech sector.
These changes are expected to boost emerging UK businesses, but will also be a welcome change for established verticals like fintech. The UK is already well-positioned as a global leader in the fintech market; revenues for fintech businesses hit £11 billion in 2019 and the Kalifa Review estimates that around 42% of UK fintech employees are foreign talent.
2. R&D tax credits review
In July 2020, the UK Government published its 'Research and Development (R&D) Roadmap' in which it set out its aim to increase gross domestic expenditure on R&D (GERD) to 2.4% of GDP by 2027. Currently, the UK lags behind Organisation for Economic Co-operation and Development (OECD) counterparts in GERD): in 2018, UK GERD was 1.7% of GDP while the OECD average was 2.4%.
Tax relief measures are an essential element of the UK's drive toward its ambitious GERD target. The Budget announces a review of reliefs supported by a consultation with stakeholders, closing on 2 June 2021. This will be especially welcome amid the corporation tax rise and gives a platform for UK tech businesses (accounting for 20% of all claims in 2018-19) to address the current issues and complexities that exist as part of the current R&D tax credit regime.
3. EMI Scheme review
Staying on the tax theme, the Government also announced a review of the effectiveness of the current Enterprise Management Incentives (EMI) scheme. Small and medium-sized enterprises (SMEs) tend to find themselves at a disadvantage to larger, more established businesses when it comes to recruiting key staff. The EMI scheme aims to level the playing field by allowing an employer to grant tax advantaged share options to an individual up to the value of £250,000 over a three-year period.
However, the current scheme comes with restrictions on the size of the company granting the options as well as the individual. In order to take advantage of the current scheme, a company must have less than £30 million in gross assets; fewer than 250 full-time employees; and carry out a qualifying trade. A review of the limits imposed by the current scheme will be welcomed by high-growth companies as they seek to recruit and retain the best talent. The Government's review will also examine whether more companies should be able to access the scheme.
4. 'Future Fund: Breakthrough'
There are well-documented challenges facing UK tech businesses sourcing funding at Series B, with a smaller pool of venture capital funds positioned to provide funds to help businesses scale. The Budget attempts to target barriers to growth with the Future Fund: Breakthrough programme, launching in summer 2021.
This programme has an initial fund size of £375 million and targets "R&D intensive companies" aiming to raise up to £20 million. The scheme matches public money with private sector investment, taking equity in return. And why? Chancellor Sunak estimates that 1% growth in such companies could boost the UK economy by £38 billion.
This will be welcome news to scaling tech businesses, however it remains to be seen whether funding will tempt up-and-coming businesses to look past offers from foreign companies with deep pockets.
5. 'Help to Grow'
If they weren't before, then 'digitalisation' and 'innovation' are firmly on the agenda for most businesses in 2021. With COVID-19 driving much of the economy online, those businesses that were able to adapt swiftly and – in some cases – roll out new ways of working, or new product offerings were able to buck the downturn that many sectors encountered. For many SMEs, keeping up with the rate of change can require significant upfront costs, particularly for SMEs lacking economies of scale. The gaps that exist aren't just in funding either; a lack of skills or awareness within your business can hamper innovation.
To address this, the Government's new 'Help to Grow' scheme aims to enhance digital skills by offering vouchers for software and expert advice. The scheme will be accessible to 130,000 businesses meeting eligibility requirements, although places are limited. Registration pages for the courses are available online.
The Government's agenda in this Budget is clear: a necessary economic boost to aid the post-crisis recovery not only of the economy but of our flourishing tech sector. The Budget is welcome amidst news that Amsterdam overtook London as Europe's top share trading hub in January. Indeed, Lord Hill's proposal to amend UK listing rules interlaces neatly with the Budget in boosting the UK's strongest assets in order to challenge the biggest international players. Tech entrepreneurs should anticipate a growing role in helping to shape the UK's standing going forward.