Budget 2021: Chancellor must use new post-Brexit freedoms to support tech-led businesses

Rishi Sunak must now show us the benefits of Brexit to support pandemic recovery

No longer bound by EU state aid rules, Chancellor Rishi Sunak has an opportunity to use the Government's new Brexit freedoms to make fiscal changes that will support tech-led businesses on the road to recovery and protect jobs in the sector.

With speculation mounting that Sunak might be preparing to introduce tax hikes to help pay for the pandemic, however, there is growing concern that taking this action now could make it impossible for tech-led businesses to advance the way to economic recovery.

Instead, the Chancellor should be using his first post-Brexit Budget to establish a tax regime that incentivises innovation and entrepreneurial investment, while helping to position the UK as a place that companies and individuals want to stay, invest and grow.

Now is definitely not the time to increase corporate taxes or cut incentives for innovation, as this will do nothing to help the tech sector to prepare for a post-pandemic bounce back. There will be a time to recoup some of the cost of the pandemic, but promoting economic stability must come first.

The Chancellor could, for example, change current corporate tax loss relief rules to allow losses incurred in the pandemic to be carried back for a longer period, in a similar way to companies being able to reclaim tax in the 2008 recession. Alternatively, he could be more creative still and allow loss-making businesses to offset losses against last year's PAYE liability. Such changes would allow some of the hardest-hit businesses to access a tax refund to support them on the road to recovery.

The Government has already agreed to extend the £1 million Annual Investment Allowance limit to 1st January 2022, which will be helpful for businesses incurring capital expenditure. However, they could go further by increasing the limit or broadening the scope of capital expenditure that might qualify, to include more structural costs.

This Budget is the Chancellor's first opportunity to show the benefits of the UK's independence from the EU. Enhancing tax reliefs in a way that would target support for struggling businesses could deliver a much-needed economic boost and protect jobs.

Further support for early-stage and fast-growth businesses could be provided by enhancing the appeal of the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) for entrepreneurial investors. These schemes provide an important source of funding. For example, for a temporary period, the Chancellor could allow entrepreneurial investors to claim income tax relief on their investment up to a maximum value of £250,000, up from the current £150,000.

Stephen Hemmings is a tax partner at accountancy firm, Menzies LLP. He specialises in advising early-stage tech companies.