Autumn Statement 2023: harvesting Hunt's windfall - TMT insights

In his Autumn Statement, the Chancellor made several announcements affecting the TMT sector, including tax, funding and regulatory announcements. A particular focus was the use of AI and AI regulation following on from the recent UK hosted AI Safety Summit. Further developments are also expected in relation to the creative industry tax reliefs with the launch of a call for evidence on how the government might target further tax incentives to the audio visual sector.

Tax announcements

The tax announcements were not specifically targeted at the TMT sector, though the move to make full expensing for capital expenditure on plant and machinery will benefit those parts of the TMT sector with significant capital expenditure spend.

In addition, confirmation that the UK will proceed with its proposal to merge the two existing R&D tax relief schemes will generally be welcomed as a simplification measure. In last year's Autumn Statement, the Chancellor announced significant reforms to the rates of R&D tax reliefs and a consultation on the design of a possible single scheme merging the existing, separate R&D Expenditure Credit (RDEC) and SME schemes. Draft legislation for that merged scheme was published earlier this year without, however, any commitment to go ahead with the proposal.

The 2023 Autumn Statement confirmed that the government will introduce a single, merged R&D tax relief scheme with effect from accounting periods starting on or after 1 April 2024 (rather than for expenditure incurred on or after 1 April 2024). Further details of the scheme can be found in the government's press release.

Despite the merger of the RDEC and SME schemes, the UK will still have two R&D tax relief schemes going forwards. The SME intensive scheme, for the most R&D intensive loss-making SMEs, was announced at Spring Budget 2023 for R&D expenditure from 1 April 2023. A company was considered R&D intensive where its qualifying R&D expenditure is 40% or more of its total expenditure. The Autumn Statement has announced that the threshold to be considered R&D intensive will be reduced from 40% to 30% of total expenditure with the change to be introduced in the Autumn Finance Bill 2023.

A significant feature of the tax landscape for the TMT sector are the number of creative industry tax reliefs. The government has concluded that there is a strong case for further, targeted support through the tax system for visual effects expenditure as the government is keen to boost the competitiveness of the UK’s offer for investment in visual effects, to help to fully harness the cultural, technological and economic benefits of this innovative industry to the UK. As such, the Autumn Statement announced that the government will provide additional tax relief for expenditure on visual effects by increasing the generosity of the Audio-Visual Expenditure Credit for visual expenditure. Animated programmes will benefit from an increased rate of relief of 5% under the Audio-Visual Expenditure Credit, which will be introduced in January 2024. The government intends to consult on the detailed policy design of further support and intends to implement changes to the expenditure credit from April 2025. The government has published a call for evidence to inform the design of additional, targeted reliefs. The call for evidence closes on 3 January 2024.

Two further changes are to be introduced to these reliefs:

• High-end TV relief: amending documentary definition – The government will amend the proposed definition of a documentary. The new definition is aligned with the guidance used by the British Film Institute and will apply to the Audio-Visual Expenditure Credit, which will be legislated for in the Autumn Finance Bill 2023.
• Amendment to rules for connected party transactions in creative industry tax reliefs – The proposal to cap the relief that companies can receive on
  connected party transactions has been amended. Companies will now be required to disclose connected party transactions and charge connected parties at an arm’s length price. This will be legislated in the Autumn Finance Bill 2023.

In addition, to help early-stage, innovative companies to obtain access to the investment they need to grow and develop, the government announced that it will legislate to extend the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) to 2035.

Finally, the Autumn Statement announced that the government will extend the sunset date for the Freeport tax reliefs to 30 September 2031 for Freeports in England. Equally, the government will extend the Investment Zones tax reliefs from five to ten years. The current sunset date for SDLT relief, enhanced structures and buildings allowances and enhanced capital allowances for plant and machinery is 30 September 2026. The secondary Class 1 NICs relief is currently available on the earnings of eligible new employees starting by 5 April 2026 only. The National Insurance contributions relief will continue to apply for 36 months per employee within the extended ten-year window.

Other announcements

Consultation to Strengthen Economic Regulation: The Autumn Statement launched a consultation on proposals to strengthen the regulation of the energy, water and telecoms sectors, focussing on encouraging investment and growth. The consultation runs until 17 January 2024.

Creative Industries funding: The government will provide £2.1 million of new funding for the British Film Commission and the British Film Institute certification Unit for 2024/25. The government will also review the evidence on public investment in R&D spending for the creative industries to a Spending Review timeframe.

Access to funding: The government also remains committed to ensuring that other early-stage, innovative companies have access to the investment they need to grow and develop. To support these innovative businesses to accelerate their growth and scale up, the government is extending the British Business Bank’s Future Fund: Breakthrough programme. This will provide at least £50m additional investment in the UK’s most promising R&D intensive companies.

R&D infrastructure investment: The government will invest £25m in scientific infrastructure through Public Sector Research Establishments.

Digital technologies: The Autumn Statement recognises that key to the UK creating a world-leading AI ecosystem is access to compute, which powers the development of AI models. With this in mind, the Autumn Statement confirmed that the government will be investing a further £500m to the £900m announced at the Spring Budget 2023 in compute for AI over the next two financial years.

AI Regulatory Sandbox: The Autumn Statement recognises that it will, however, be necessary to ensure the safe development of advanced AI system and the UK is taking a leading role in this area, having hosted the world’s first AI Safety Summit earlier this month. The government will be launching the first AI Safety Institute, backed by an initial £100m investment. In parallel, the government is developing its wider regulatory approach, to balance innovation and safe adoption, publishing its response to the AI white paper by the end of the year, and launching a pilot AI Regulatory Sandbox in the spring. Later this year the government will be launching the Manchester Prize which will award prizes of up to £1m to researchers working on the safe, responsible application of AI over the next 10 years.

Made Smarter Adoption: In order for SME leaders to acquire the vital skills and opportunities they need to increase productivity and grow their businesses, the government is expanding the Made Smarter Adoption programme helping more manufacturing SMEs use advanced digital technologies. The government is also setting up a taskforce to rapidly explore how best to support SMEs to adopt digital technology, committing to delivery of the Help to Grow: Management programme beyond 2024/25 and offering additional support to SMEs to access global markets through UK Export Finance.

Connectivity in Low Earth Orbit (CLEO) R&D programme: The government is opening £15m of calls to nurture innovation for satellite communications which will be delivered as part of the £60 million European Space Agency Advanced Research in Telecommunications Systems (ARTES) programme, allocated to the UK’s CLEO scheme.