Brian Williamson is managing director at Edinburgh-based R&D tax relief specialist Jumpstart.

So the dust has settled, if not completely, at least to eye level. Whether it will ever settle again properly remains to be seen.

The economic figures show encouraging growth prior to the vote, but who knows where that will end up.

Currencies have settled, albeit at a lower level. The pessimists say that’s bad news for imported costs, while the optimists say it is great news for exports. Since we’re trying to export more than we import, it sounds like good news to me.

Similarly, the reduction in interest rates to an all-time low shows the appetite the Bank of England has for using its own economic levers.

But enough of all the sitting on the fence malarkey we endured in the run up to the Referendum. Let’s look at what we think the short term future holds for companies and our customers now that we know the outcome.

Down with Corporation Tax

When former Chancellor George Osborne first announced plans to cut the rate of Corporation Tax (CT) to 15%, it was to give the market confidence that the UK was still very much open for business.

What’s the relationship though between lower CT and an improving economy? Should we in fact be aiming for the even lower 12.5% tax rate that Ireland has boasted of and that other tax haven jurisdictions advertise (albeit Panama is keeping a low profile right now)?

The US is allegedly the largest economy in the world, yet it has a CT rate of 40%. Looking at the numbers, HMRC reckons it loses almost £20bn in CT, Excise duties and VAT, with VAT being the biggest source of lost income. So how much would cutting the tax rate cost?

Well, since CT was reduced from 52% to the current 20%, tax receipts have actually gone up five fold. This is a chicken and egg conundrum: did the lower tax rate stimulate growth in the economy or was that going to happen anyway, despite the reduction? Either way, abandoning the plan to achieve a fiscal surplus by 2020 will surely stimulate elements of the economy.

The smart money is definitely on a reducing headline figure for CT, which is good news for business and, I think, the economy.

R&D tax relief set to soar?

R&D tax relief is an economic lever designed to reward companies that are investing in technology, which gives the UK a competitive edge. Currently, it costs £1.7bn a year.

When the ex-Business Secretary Sajid Javid spoke to the FT, he laid out his five point plan for emergency tax cuts. One of them was doubling the rate of R&D tax relief. Now, as the UK’s leading provider of R&D tax relief support, you might think that would have me performing somersaults. But no, “be careful what you wish for” is my mantra here.

R&D tax relief is an unregulated market. And we know all too well what happens when you over-use economic levers in unregulated markets to stimulate the economy. They are like firearms – dangerous if they end up in the wrong hands. As R&D tax relief rates rise, we’re therefore predicting increased regulation by HMRC.

In a similar vein, the Advanced Assurance scheme for R&D tax relief claims is, I think, designed to get companies to catch themselves out. That’s a pretty smart and efficient way to handle regulation.

I think there’ll be some movement on the rate, but doubling it is more of a statement for the market. Combined with a drop in the rate of Corporation Tax, it’s likely we’ll realistically see R&D tax relief rates rise from 230% up closer to 300%.

Funding faux pas… ou non?

It doesn’t take a genius to work out that June 23’s Brexit vote is going to have a negative impact on European grant funding. But even that will take time.

Other areas funded by European money, like Scottish Enterprise, are likely to continue. However, we predict that there’ll be a tightening of the funds available as budgets are reduced. This tightening may be just the driver needed for improving the economy through a reduction in CT and an increase in R&D tax relief allowances.

At the same time, there should also be a relaxation of the rules on state aid now that Europe no longer pulls these strings. This may well lead to a change in legislation on how you will, or will not, flip part of your R&D tax relief claim into the larger company scheme. We think it highly likely that the R&D tax relief rules will change significantly to compensate.

Verdict

So, yes, there are plenty of changes ahead following Brexit, but they’re by no means all bad. In fact, on balance, we’d say the outlook is really rather good.