Cashback incentives - the key to success for scaling tech companies .

About the author

Iain Butler

+44 (0)20 7556 1343
butleri@buzzacott.co.uk

It’s the last budget before the UK is due to leave the European Union, and will set the tone for the British economy in the years after Brexit.

In recognition of this, the Confederation of British Industry (CBI) has issued its budget submission, demanding that “The Chancellor of the Exchequer turn warm words for business into action – no ifs, no buts”. 

It urged the Chancellor to raise the annual investment allowance from £200,000 to £500,000 for two years and to explore ways of increasing capital spending in the technology sector.

This comes off the back of news that the UK ranks lowest out of the G7 in terms of business investment as a proportion of GDP. The Director-General of the CBI, Carolyn Fairbairn, noted that the problem doesn’t stem from businesses being reluctant to invest, “but because the conditions are so often not conducive to doing so.” 

And of course, when there isn’t enough investment, it directly impacts on productivity, which is at its lowest level since the 1990s. This, for me, is what truly drives the reduction in GDP – and it needs to be solved. 

The value of young businesses

It’s vital that we reverse this, and make the UK into a growth environment for business – especially in the technology sector. 

We’re pleased to see these suggestions from the CBI, and we support it in its calls to create a better investment environment. Raising the annual investment allowance is definitely a step in the right direction. 

But this only favours businesses that are profitable who can use this allowance. By being focused on profitable businesses incentive depriving start-ups and scale-ups – and there were 10,016 incorporated in 2017 – from accessing the same benefits. 

Instead of encouraging profitable businesses to invest more, we want to extend the opportunity to those who haven’t had it previously. And this means young companies who haven’t yet entered profitability or rapidly growing high technology businesses who are already investing but could be encouraged to spend more to be properly world leading. 

Focusing on start-ups and scale-ups is the best way to increase the number of businesses who are investing. And since the UK tech sector is powered by these businesses, enabling them to grow seems a winning formula for injecting growth into the whole industry. 

Cashback: an opportunity for everyone

A more inclusive approach would be to look into cashback schemes.

Today, it’s probably just as good to leave money in the bank when compared to investing in capital equipment. This is where research and development (R&D) incentives should come into action.

We agree with the CBI that the UK R&D credit scheme should be reviewed to ensure it is the world’s most competitive. Currently, the R&D tax credit scheme works because it offers cashback to loss-making or non-tax paying businesses – which applies to most start-ups or scale-ups. But it is limited in its scope and does not cover capital investments. 

The equivalent scheme for capital expenditure does not offer the same cash back benefits and most start-up or scale-up businesses ignore this incentive altogether as it provides no immediate support. 

If the UK is to strengthen its position in the technology sector, we need to start seeing a cashback element to improve the return on investment calculations. Why shouldn’t the UK incentives support businesses to investing in the latest development hardware or testing products that could substantially improve the productivity within their R&D teams? 

One idea would be to bring in a cashback element to research and development allowance schemes when purchases are related to high technology capital equipment to be used in R&D projects. This would also support those businesses developing technology who tend to struggle for finance as the payback time can be much longer than for a technology-enabled business proposition.

Offering this to small and medium-sized enterprises (SMEs) will provide them with a platform to grow and develop into larger and competitive tech companies.

Guaranteeing growth post-Brexit

The goal, as always, is growth. 

If we can boost scaling tech companies in their growth journey, we’ll see enormous benefits for the sector and the UK economy as a whole. 

The 2018 budget is a great opportunity to do this. We’d like to see it include more cashback schemes since these are the best way to enable SMEs to thrive in the UK - post-Brexit and beyond.

Do you have a question regarding the article above? Fill in the contact form below and we'll answer any queries you may have.