After a decade of little change, the tax regime for research and development in the UK has undergone a ‘credit style’ revamp, writes Liam McHenry  New research and development (R&D) rules for businesses in the UK with an accounting period beginning on or after 1 April 2024 have commenced. These entities are within the remit of the newly merged, research and development expenditure credit (REDC) expenditure scheme – with the exception of “highly R&D-intensive companies”. Companies with over 30 percent of their yearly expenditure qualifying for R&D tax relief can still claim under a restricted version of the SME scheme. Given this high bar, however, it is likely that only small technology start-ups will qualify.  For everyone else, the new rate will provide a benefit worth about 15p per £1 of qualifying expenditure, so not all is lost for those exiting the SME scheme, as a generous tax incentive remains for potential claimants. Reduced complexity? The stated aim of the merged scheme is to reduce complexity for claimants and their advisors. With two schemes remaining post-merger, however, the new scheme is actually more complex than its predecessor.  Subcontracted expenditure had previously been excluded under the RDEC scheme in any meaningful way. Under the new merged scheme, a new system has been put in place with the aim of rewarding whichever party decides to undertake the R&D activity. This adds a new dimension to determining the eligibility of qualifying R&D expenditure insofar as a subcontractor will now need to determine whether they believe their customer knew in advance that a project would require R&D activity. The theory is that this approach will remove the potential for both parties to claim on the same project, but it is easy to see how ambiguity might arise. When agreeing the terms of contracts with customers, claimants must pay additional attention to any clauses relating to intellectual property (IP) generation and whether they indicate that R&D will be required. Taking care at this stage could help claimants identify and preserve their right to claim the corresponding tax relief. Overseas expenditure A restriction on overseas expenditure was also introduced on 1 April 2024. Unless there is a compelling reason why the expenditure could not reasonably have been incurred in the UK, it will not be eligible for inclusion in the claim. However, recognising the unique position of Northern Ireland and its significant integration with the neighbouring Republic of Ireland, claimants can bypass this new restriction. By doing so, they could gain up to a maximum additional benefit of £250,000 every three years. This may require some additional administration, but it is still a welcome reprieve from the restriction, which would have been costly. Increased scrutiny This article offers a summary of the main rule changes coming into effect this month. In reality, there are more of which claimants should be aware. His Majesty's Revenue & Customs (HMRC) has dramatically increased its compliance efforts, with recent revelations from the Public Affairs Committee indicating that upwards of 20 percent of new R&D claims are now under scrutiny. While this fact alone should not be a major concern, it is worth noting that this increased scrutiny often comes with an aggressive stance, beginning with the assumption that R&D claims should be disallowed. The experience of one claimant to another can dramatically vary depending on which caseworker is allocated to the enquiry. Regardless, opening an enquiry can be a prolonged process before a conclusion can be reached. In the event of an unsuccessful enquiry defence, HMRC will be obligated to consider whether any penalties should be levied, depending on whether they determine that the claim was prepared carelessly. In addition, depending on the level of disclosure provided in previous claims made in recent years, HMRC can (and is actively encouraged to) look into these previous claims beyond the normal enquiry window. Planning ahead The implementation of the new R&D tax rules marks a significant shift for businesses heavily reliant on R&D activities for growth and innovation. As businesses adapt to the new regime, strategic planning and collaboration with tax advisors will be essential in maximising the benefits. Liam McHenry is Director of Tax at Grant Thornton

Recent comments by the CEO of America’s biggest bank suggest AGMs are losing power and relevance. David W Duffy delves into the details Annual general meetings (AGMs) are crucial in corporate governance. They are a legal necessity and provide a valuable opportunity for shareholders to speak to leaders. These days, however, criticism is surfacing in some companies that AGMs are becoming a nuisance. Activist pressure So, what exactly is turning the tide on AGMs and their perceived value? In short, the activist pressure exerted recently at some very high profile AGMs.  At Disney’s most recent AGM in early April, for example, shareholders were encouraged to vote in favour of a proposal that would see the entertainment giant pay for services for people choosing to detransition. The Disney proposition had no material impact on the company’s strategy, and JPMorgan Chase Chief Executive Jamie Dimon took issue.  According to Fortune, Dimon claimed that AGMs were falling victim to “spiralling frivolousness”, dominated by lobbyists, activists and interest groups, which bear little relation to the company’s strategic direction.  There’s no “right or wrong” for a statement like this; it is really just a measure of whether or not other corporate leaders agree.  The leaders of some companies could easily agree with Dimon, especially those at the helm of companies whose AGMs are rife with debate. In companies where AGMs are quieter – sometimes to the point of formality – leaders may not need to worry. Importantly, board members and other stakeholders must remember that anything is possible at an AGM. They could, for example: serve as a hotbed for debate; become a forum for topics considered politically charged (anything from geopolitics to religion to social issues to climate change); feature shareholder proposals put forward solely to make a point, win support or express anger; or seem like a waste of time to corporate leaders because of all the above.  None of this is a given, however. It is far more likely in bigger, global companies – household names consumers feel are so big that their impact stretches beyond their mission statement. In these scenarios, stakeholders generally want the company to take a stance on every political issue, and shareholder proposals at AGMs are part of this. Are AGMs fit for purpose? The threat of any of the above scenarios may mean that some companies’ AGMs are not fit for purpose. It depends on the goals of the people who attend. Companies can’t just get rid of AGMs, however.  AGMs are a cornerstone of business. They often serve as the one opportunity many small shareholders have to speak to the company’s leaders – and, by law, this chance must always be available.  An organisation considering changing its AGM must first examine its articles of association. These are usually where AGM rules like voting procedures and scheduling are found. Beyond this, there may be wiggle room. AGM options It is advisable that leaders and participants accept that the AGM will be active, full of differing opinions and multiple proposals that go nowhere, making it feel like a distraction. If you approach the situation with this prepared mindset, you might find it easier to register the elements of impactful processes beneath the noise.  It’s also advisable to get proactive about issues. You may be better prepared if you anticipate the problems that shareholders are likely to raise and discuss them at the executive and board levels. In the process, you could gain critical insights that shape your understanding of shareholder opinions and frame a more robust conversation. However, if an organisation still wants to change their AGM – and the articles of association allow it – boards can change things like length, the requirement for in-person attendance and the time balance between corporate leaders and shareholders. It must be noted, though, that if a board changes any of these elements, it may appear to be attempting to be creating barriers to debate and shareholders might not respond well. The bright side Many companies have seen their AGMs dominated by activist noise in recent years. While this issue can be addressed by making changes, the bottom line is that the AGM as a concept is here to stay. Organisations should view the “noise” as an invitation to develop relationship management skills and stay on top of emerging trends. These are hugely important for good corporate leaders, and a busy AGM could be the time to flex those muscles. David W Duffy is a founder of the Corporate Governance Institute

The Department for the Economy unveiled an ambitious plan to boost the Northern Ireland economy in 2021, but will it be up to scratch? Professor Anne Marie Ward, Dr Esmond Birnie and Dr Stuart Henderson crunch the numbers to find out if the 10x Economy vision can deliver. Some argue that the Northern Ireland (NI) economy has strong potential given its apparent unique trade position as a halfway house between Europe and Britain, combined with the Department for the Economy’s (DfE) ‘10x Economy’ policy, which targets innovation, inclusion and sustainability. Yet, despite experiencing 25 years of peace, NI continues to suffer from political uncertainty and lower economic productivity relative to Britain and the Republic of Ireland (ROI). Moreover, ongoing uncertainties associated with Brexit continue to dampen potential foreign direct investment, which has been vital to the strong economy in ROI. It is against this backdrop that the DfE introduced a new growth policy in May 2021 aimed at achieving a 10-times better economy (‘10x economy’) by 2030.  The 10x vision is underpinned by objectives grouped into three pillars—innovation, inclusive growth and sustainability—and focuses on six priority sectors:  1. Agricultural technology (agritech); 2. Life and health sciences; 3. Advanced manufacturing and engineering; 4. Financial services and financial technology (fintech); 5. Software (including cybersecurity); and 6. Screen and low carbon.   The data The Northern Ireland Economic Trade Statistics (NIETS) is a new dataset that provides details on trade between NI and Britain for the first time. We have analysed this dataset, which covers the period 2014–2020 and comprises a sample of enterprises that are VAT or PAYE registered and trade in NI.  Approximately 5,000 to 7,000 enterprises respond to the survey annually. As part of our research, we examined the 10x priority sectors over the period 2014–2020.  Data on financial services and fintech are not included in the dataset and due to GDPR issues, we had to merge some of the 10x priority areas, ending up with four 10x sectors:  • Agritech;  • Health and life sciences; • Advanced manufacturing (including low carbon); and  • Software and screen.  Approximately 11.4 percent of the total sample is classified as being 10x. Here is a summary of our findings. Growth in sales and gross value added (GVA) As shown in Table 1, the 10x sectors of the NI economy were relatively resilient from 2014–2020 as total Gross Value Added (GVA) increased over the period, though agritech was negatively impacted by COVID-19.  Performance of the non-10x sectors improved over the period 2014–2019, as evidenced by increased total GVA (except traditional manufacturing, which declined by 20.35%). Most non-10x sectors were adversely impacted by COVID-19, however, except manufacturing and ‘other’ production.  Productivity Productivity is measured by the ratio sales per employment and GVA per employment. As illustrated in Figure 1, for 2014–2020, the wholesale and retail sector had the highest sales per employment, followed by agritech and other production. Other production has the highest GVA per employment, followed by construction, health and life sciences and software and screen. Agritech has the second lowest GVA per employment. External sales behaviour A country’s wealth is influenced by its ability to attract funds from external markets. To determine how NI is doing, we investigated the trade behaviour of NI enterprises using four ratios, which reflect the percentage of overall sales each business undertakes with Britain, ROI, the rest of the European Union (REU) and the rest of the World (ROW). The average percentage for each year (2014–2020) for the whole sample is provided in Table 2.  The most important external market is Britain, accounting for on average 11.75 percent of sales, followed by ROI (6.18%), ROW (2.69%) and REU (1.74%). Generally, the percentage of total sales to these external markets increased steadily over the period 2014–2019 and declined in 2020, coinciding with COVID-19. Patterns in the percentage of total sales to the four markets are further analysed by sector over the period 2014–2020 in Figures 2 to 5. Sectoral differences are evident. Generally, non-10x enterprises (the six to the left-hand side of each figure) are less engaged with external markets relative to 10x enterprises (the four to the right-hand side of each figure).   Differences in the relative importance of markets is also observed across sectors. For example, the ROI market is most important to the agritech sector (Figure 3), and the ROW market is most important to the health and life sciences sector (Figure 5), probably indicative of sales to the US. This sector is also very active in markets in the REU (Figure 4).  Note: When interpreting these results, be aware that the data is based on the largest enterprises in NI and the authors had to design their own 10x categories based on Standard Industrial Classification codes.   Will it work? The number of enterprises in NI that can be classed as ‘10x’ increased over the period from 619 in 2014 to 723 in 2020. They are contributing GVA to the economy and, importantly, most of their turnover is to external markets, which is beneficial for a small regional economy where local demand is limited.  These enterprises seem to be resilient, with little change in behaviour observed in the period after Brexit, and, with the exception of agritech, they continued to grow despite COVID-19 (though the data was only available for 2020).  In theory, the DfE’s ambitions are laudable. Cluster approaches have proven successful in other countries, including ROI, where foreign-owned high-tech enterprises pay higher wages, invest in R&D for future growth and have high exports.  Moreover, the vision of sustainable growth and prosperity for all (levelling up) aligns with more holistic concepts of economic growth that account for social and environmental concerns alongside economic prosperity.  There are concerns, however. This is an ambitious undertaking that will take time to implement. The 2030 target set by the DfE is tight, the support structures to fuel 10x growth are not yet fully established, ‘10x’ is not yet fully defined, ‘place’ is not yet fully defined and hence the data are not (yet) available to enable 10x to be identified and analysed by place.  This will hinder the ability to foster clusters and build networks, which are important for innovation. Also, change will be difficult due to existing established structures.  For example, most policy and government action is managed through Local Government Department (LGD) level structures. However, clusters of enterprises may cross LGD boundaries, complicating a joined-up approach.  In addition, economic and social development is not only managed by the DfE; many other bodies such as central government and local government departments, business networks and educational establishments, are involved. Role for accountants Accountants can play an important role in the success of the DfE’s policy and the future of the NI economy. Accountancy firms are present in most towns across the region. Accountants are part of local business networks and have first-hand knowledge of entrepreneurship and innovation within communities.  Moreover, accountants are well-equipped to facilitate the creation of priority clusters and expanding networks that enable local businesses to connect and grow both within and beyond their communities. This will be good for communities and for the accountancy profession.   *Note: The tables and diagrams in this article are from the authors’ full report, available on the Northern Ireland Statistics and Research Agency website. Professor Anne Marie Ward, FCA, is Professor of Accounting at Ulster University; Dr Esmond Birnie is Senior Economist at Ulster University; and Dr Stuart Henderson is a Lecturer in Financial Services at Ulster University.