Budget 2012: Start-ups welcome new R&D tax credit

Budget 2012: Start-ups welcome new R&D tax credit

Effectiveness of enterprise loans and impact of extension to Enterprise Finance Guarantee doubts remain

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Start-ups have welcomed the announcement of a new above the line (ATL) R&D tax credit, which they believe will help boost jobs and UK exports.

In his Budget speech, Chancellor George Osborne said that from April 2013, the government will introduce an ATL credit for R&D with a minimum rate of 9.1 percent before tax. Loss-making companies will be able to claim a payable credit.

A consultation on the details of the credit is expected to take place after the Budget, which will decide final rates, including for the payable credit.

Dominic Wheatley, chairman of SocialGO, an online service that allows people to create their own social network, says that his firm has taken advantage of R&D tax credits in the past.

"R&D tax credits are excellent and welcome. Anything that can reduce the cost of employment means more jobs, more products to market, more UK exports. Anything that can back that can be good," he said. Wheatley was also the founder of Domark Software, which later became video game publisher Eidos.

Osborne also announced the government's plans to improve the Enterprise Management Incentive (EMI) scheme, which was set up to help SMEs recruit and retain talent, by more than doubling the individual grant limit to £250,000. It is also consulting on changing the restrictions to EMI to allow academics employed by start-ups to access the scheme.

Elizabeth Varley, CEO and co-founder of TechHub, a community and workspace for technology entrepreneurs in London, welcomed this, with some reservations.

"Efforts to help recruit and retain talent will be very welcome for small businesses. I'm eager to see the details about exactly what this will mean as this is one of the biggest challenges for tech start-ups that need highly-skilled employees, but have limited budgets for salary and benefits," she said.

"However [with the EMI], it's important that we're not supporting businesses that come from those who could afford university, at the expense of other start-ups. Many entrepreneurs now eschew the high cost of further education in favour of effectively creating their own jobs, and those people should be given huge levels of support as they genuinely create something out of nothing."

Meanwhile, Wheatley was wary of the government's plan to introduce a programme of enterprise loans to help young people set up and grow their own business. A pilot of the scheme will be introduced later this year, and it will build on existing programmes such as the National Enterprise Allowance.

He said: "I am always leery of government funding for small businesses and making it the government's decision as to who deserves it. It is much better to give breaks to investors who make real-world choices. Let them [investors] decide who gets the money, rather than government.

"Like the government's National Loan Guarantee Scheme, some schemes have been useless because banks will not lend to companies because they still have some risks. I think exactly the same thing will happen to this.

He added: "You need business people and investors out in the real world to use their money to back start-ups and entrepreneurs. Award those people through tax breaks, because they're taking the risk and they are creating the spark of employment."

Furthermore, James Murphy, co-founder of start-up Elevate, an online recruitment platform, said that the government's extension of the Enterprise Finance Guarantee (EFG) would not be particularly useful to start-ups. The scheme aims to encourage banks to lend more to smaller businesses by raising the level of lenders' EFG portfolios to which the government guarantee applies from 13 percent to 20 percent for 2013.

"The extension of the EFG scheme is a good thing, but in reality it does not affect start-ups as it's not available to us really," he said.

"There is too much hot air around lending to small businesses and start-ups – they are not distinguished. The EFG looks to help small businesses that have a trading history expand and move forward, but a start-up does not have the track record, so usually looks to seed funding first."

As a London-based firm, Murphy welcomed the chance to get involved with the London development fund that Osborne announced, but expressed dismay at the lack of further help for entrepreneurs.

"No talk of business rate reduction for start-ups – which is a shame. In reality they will go up," he said.

Varley added: "We'd like to see relief on council business rates for technology clusters that include significant numbers of small companies, to recognise that for product companies, revenue and profit isn't always linked to property size due to the fact that revenues are often reinvested into job creation."

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