What could Brexit mean for UK innovation incentives?

29 June 2016

Many companies have asked me over the past week what Brexit could mean for UK innovation incentives like R&D credits, patent box, EU and national grant funding. Whilst the easy, obvious answer is that it is too early to say, I could go further and say that, in my view, there are some positive signs emerging from the uncertainty.  These are as follows.

  • The current legislation for R&D reliefs and patent box continues to apply with no aspects placing reliance on the UK being part of the EU. There is no reason to believe that leaving the EU should impact Government policy in these areas and the Government will be keen to maintain and enhance measures that support competitiveness to counter wider uncertainty.
  • We have heard from George Osborne that “the British economy is fundamentally strong, we are highly competitive and open for business”. Indeed, rumours of a potential reduction in corporation tax could go some way to help UK attractiveness.
  • My experience is that the UK is keen to encourage and promote innovation and R&D reliefs have continued to increase over many years now. Economic arguments for R&D funding are also persuasive. I would suggest the UK will continue to incentivise, and perhaps augment, UK innovation to attract and retain businesses.
  • Historically we have seen the UK SME R&D tax relief capped by State aid. Depending on how we engage with Europe going forward (and whether competition law continues to apply), this cap could be lifted, possibly allowing further increases.
  • Whilst the patent box nexus legislation has yet to be enacted, I believe we will continue with nexus from 1 July 2016 as proposed and in line with the OECD’s BEPS program. There is no reason why leaving the EU should have any impact on policy in this area and to do otherwise could convey an unhelpful message to Europe, pending exit negotiations. Our understanding is that patents obtained via the European Patent Office (EPO), which is not an EU institution, will not be affected by the UK exit.
  • Academia relies heavily on grant funding and innovation works best when companies and academics collaborate on a pan-European basis. The Department for Business, Innovation and Skills should now consider what it does to replace/replicate EU funding assuming the UK will withdraw from the European funding program Horizon 2020 as part of an exit. One would assume funding could actually increase in the longer term as a result of potential savings in fiscal transfers to the EU.

There will be unavoidable short term economic impacts as businesses put decisions on hold due to the immediate uncertainties that we now face. That said, whilst EU grant funding will need rethinking, it seems highly unlikely that UK R&D and patent box incentives should diminish, and, in my view, there are now opportunities for these incentives to increase. 

Our EU experts are here to help you navigate the aftermath of the EU referendum result and you can find links to our related thought leadership and expert opinion here. http://www.pwc.co.uk/the-eu-referendum.html

Or if you have any questions please get in touch with me (angela.browning@uk.pwc.com) or your regular PwC contact.

Angela Browning

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