The Growth Plan: What does it mean for Fintech?

With the ‘mini’ budget proving to be anything but, we take a look at what the Chancellor’s announcements means for fintech.

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Emily Sharland
Published: 28 Sept 2022 Updated: 28 Sept 2022

The “mini budget” certainly provided more tax changes than expected, with a welcome message for fintech’s that the Chancellor is committed to making the UK more competitive.  Although this mini budget seemed mainly focussed on start-ups and larger companies rather than SME’s and scale-up businesses, there are several positive changes for the fintech sector.

The tech talent shortage in the fintech sector is still a major hindrance to growth, so the doubling in the limit for options issued under company share option plans (CSOPs) to £60,000, and the reform to the qualifying conditions, should enable fintech business to be more flexible in their ability to attract and reward high calibre staff, a key feature of the Kalifa Review. Those with CSOP schemes will want to review their arrangements and those without may want to consider reviewing which reward package is right for them. In addition, the repeal of the off-payroll working rules (IR35) will also be welcomed but there will be frustrations in terms of the time and energy that many companies have invested in compliance with these short-lived regulations.

For larger companies, there is welcome news in respect of the cancellation of the proposed corporation tax rate increase from 19% to 25% from April 2023 and the scrapping of the 1.25% increase to national insurance contributions from 6 November 2022. Companies should ensure that budgets and forecasts are updated to reflect these changes and review their position on quarterly instalment payments. This is particularly important in light of the HMRC late payment interest rates increasing in line with the base rate.

Challenger banks will be pleased that the Chancellor announced the continued increase of the banking corporation tax surcharge allowance from £25m to £100m.

Welcome news for fintech start-ups will be the long awaited changes to SEIS and EIS in the form of removal of the sunset clause enabling the schemes to be extended beyond 2025. The SEIS limits have also been increased in the hope that this will increase investment into early-stage companies. This commitment to back UK start-ups is great - it will, however, be interesting to see the extent of the benefit and impact that these increases will have in practice in the fintech sector, especially given that many SEIS companies would typically look at raising funds under the EIS subsequently.

One route to unlocking investment may be delivered by the proposal to bring forward draft regulations to reform the pensions regulatory charge cap.  These proposals would give defined contribution pension schemes the clarity and flexibility to invest in the UK’s most innovative businesses and productive assets, creating opportunities to deliver higher returns for savers. In addition to this, the launch of the long-term investment for technology & science (LIFTS) competition provides up to £500 million to invest in scale-up businesses. Given the high-profile funding rounds in the fintech sector this year, fintech is being recognised as an important growth space and these proposals should increase the pool of investors in the fintech space, enabling continued growth.

The introduction of ‘Investment Zones’, an extension to the recent Freeport model, will have been welcome in many sectors.  The tax incentives under consideration mainly benefit businesses with a greater physical, ‘bricks and mortar’ presence but fintech businesses may benefit from reduced business rates or employer national insurance contributions.  The announcements are unlikely to help the national connectivity issues in fintech as raised by the Kalifa Review in 2021.  The report explained that “to maintain the UK’s position as a fintech hub, we must focus on scale and supporting regional specialisms – especially the significant intellectual property being created in universities.” We hope that more is done to address this in the main budget.

We will unfortunately have to wait until the budget to see the result of the recent consultation on R&D and, in particular, progress on cloud computing costs and refocussing the reliefs towards innovation in the UK – both of which will be particularly relevant for fintech businesses who are keen to plan ahead of April 2023.

This seemed to be a mini-growth plan aimed at early-stage business, with the Government looking to ensure investment and growth at the seed level is not hindered by rising costs. We hope that a full budget will include further changes that support the growth of SME’s operating in the fintech sector, both in London and regionally.

NT Ref: NTAJ14092259

Important information

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. Details correct at time of writing.

Tax legislation

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.