What the Budget means for the tech industry

The Budget has received a guarded welcome from the tech industry, which praised the increase in R&D credits but insists more needs to be done to encourage investment in technology.

The R&D tax credit has been increased from 125 to 130 per cent for larger companies, with SMEs getting an increased tax credit of 150 to 175 per cent from April 2008.

As the Budget report explained: "As one of the key drivers of productivity growth, the government has ensured the tax system acts as a positive incentive for business innovation."

Technology trade association Intellect said the tax credit increase for smaller companies is welcome - but for larger companies the rise will only create a real value increase of about four per cent.

And Tom Wills-Sandford, deputy director general of Intellect, said to attract multi-nationals to undertake R&D in the UK, the tax credit for larger companies needs to rise to at least 150 per cent, which equates to a six to eight per cent rise in real terms.

More than 6,000 claims for the R&D tax credits were received between 2004 and 2005, amounting to nearly £600m of government funding for business R&D during that period, according to Treasury figures.

Diarmuid MacDougall, tax partner at PricewaterhouseCoopers, said it is now more important than ever that companies who may be entitled to the relief, but have not yet claimed, find out what their entitlement is.

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Paul Stobart, CEO of software company Sage, told silicon.com his company has been investing more in its R&D efforts as a result of the tax credit scheme in recent years and it is a relief the Chancellor decided to improve and not do away with tax credits for R&D.

But smaller businesses will also see an increase in corporate tax from 19 per cent to 22 per cent in 2009.

Stobart said it is disturbing to see the government increasing corporate tax on small businesses "who are the backbone of UK business".

This year's budget also introduced an Annual Investment Allowance of £50,000 for all businesses and improved green initiatives.

But Stobart told silicon.com: "The R&D and environmental aspects are outweighed by the increase in corporate tax for SMEs."

Service-orientated SMEs in particular will suffer from the three per cent corporate tax hike as they do not have the £50,000 capital available, Stobart added.