By Daniel Hunter
A survey of over 2,000 technology businesses published shows a sector buoyed by its strengths in the development and commercialisation of technology but equally aware it is operating in uncertain times.
The poll by accountants and business advisers James Cowper and their colleagues in the Kreston International Network of accountancy firms included the earliest stage pre-revenue spin-outs to larger businesses employing over 100 people, with revenues in excess of £20 million.
The annual survey, first undertaken in 2010, focused this year on the views of contributors on state assistance and how they were finding the economy.
“Far and away the most popular governmental initiative has been that of R&D tax credits. However, there appears to be a downward trend in those accessing UK’s state aid amongst our respondents compared to last year," Sue Staunton, partner and head of James Cowper’s Technology practice said.
"There was also a strong thread in the replies calling for a reduction in red tape and legislative burden, particularly in light of concerns that we are heading for a triple dip recession.
“Many technology businesses are calling for the Government to make more money available with one respondent suggesting it sets up a £2 billion Bank of England ‘Dragons Den’ fund. Another suggested that the Government should consider mandating banks to lend to pre-revenue companies.”
“Businesses are feeling the impact of the recession most when they encounter difficulties in raising equity finance and generating revenues,” added Sue. “Despite examples where people were expressing concerns, however, some 43 per cent of respondents raised money within the last year, with 35 per cent raising £1m or more. A high percentage of respondents also plan to raise over £1m within the coming 12 months. These aspirations contradict the overall belief that the recession has severely impacted the ability to raise money.”
Respondents commented on the need for more money to be made available to earlier stage companies. Over half of the people surveyed turn to business angels and a third rely on family and friends.
Sue explained: “Strikingly, two thirds of our respondents were concerned at the ways in which they perceived investors to have changed how they evaluate investment opportunities with some pointing to equity funders becoming more risk averse.
“Planned sources of funding are sometimes combined but most popular are grants followed by business angels. Many grants are match-funded, meaning that they are only awarded when other funds have already been raised, so they don’t necessarily represent an alternative source of funding. A high proportion of respondents had benefitted from grants but despite their apparent popularity, replies suggested that the application process can be off-putting.”
From a tax point of view respondents largely called for extensions of existing tax incentives but there were also arguments for tax a fresh approach to retaining intellectual property through income tax relief.
Sue Staunton said: “Many people called for an extension of the EIS cap from 30%. There were also calls for the reduction in PAYE/NI for new employees in technology-based businesses. As a method of retaining intellectual property and supporting entrepreneurs in the UK, one respondent suggested that there should be income tax relief for engineers and natural scientists. This has similarities to the Irish Artists Exemption Tax Relief and it will be interesting to see whether it features in the Chancellor of the Exchequer’s future plans.”
Sue concluded with some advice for the Government: “Many of the themes drawn out in the survey are consistent year-on-year but of particular note this time were the numbers of respondents who appear unaware of key Government initiatives, such as Patent Box. This strongly suggests that before other measures are introduced, the Coalition should publicise the opportunities they already offer to businesses within the sector more effectively.”
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