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Home working spurs rise

Scotland sees tech startup boom in lockdown

digital skills

Tech businesses continue to grow in number

Scotland has enjoyed the highest number of tech start-ups of any part of the UK, driven by the lockdown and home working.

Start-ups soared by 57% in the third quarter compared to quarter one data, according to research by audit and tax firm RSM.

A total of 390 Scotland-based software development and games businesses have been incorporated at Companies House this year.

Second highest was the West Midlands with a 48% rise, and Northern Ireland 44%. The east of England dropped 1.4%, and Yorkshire and the Humber was down by almost 1%. 

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Ross Stupart, corporate tax partner at RSM in Edinburgh, said: “At a time when many sectors are feeling crippled by the impact of the pandemic, it is encouraging to see the tech industry in Scotland experiencing growth.

“This can be attributed in part to the lockdown, which drove an increase in demand for technology to support remote working.

“The huge increase in working from home, as well as leisure time spent at home, has meant far greater need for digital technology and a growing demand for digital entertainment.”

The figures will come as some relief to the tech sector, which warned that without support there would be a meltdown among cash-hungry start-ups. The data will also encourage the Scottish government’s belief that its funding measures may be helping to nourish the tech sector.

In a further boost for tech and other industries, new statistics from HMRC revealed a 32% year-on-year rise in the number of claims for research and development (R&D) tax credits submitted by Scottish companies in 2018-19, with the level of tax relief claimed also rising by 34%.

In total, 2,925 R&D claims were submitted in 2018-19, which amounted to a total of £235m in tax relief being secured by businesses across the region, with average claims exceeding £80k. Historically, software and tech businesses have represented around 49% of these claims.

Research and development plays a crucial role in Scotland’s long-term economic growth

– Ross Stupart, RSM

UK-wide, over 59,000 claimants have received £5.3bn of tax relief, an increase of £1bn from the previous year. HMRC recently published a consultation document to explore how the scope of qualifying expenditure for research and development (R&D) tax credits ought to evolve to reflect the modern trends in R&D.

Ross Stupart continues: ‘We are encouraged that the Government has sought to consult widely on how the scope of expenditure qualifying for R&D tax credits should evolve alongside technology in areas such as cloud computing and data.

“Research and development plays a crucial role in Scotland’s long-term economic growth. While the year on year increase is encouraging, R&D is currently complicated and is therefore still under-utilised.

“In the current climate, it is even more important that the UK has a tax regime that is internationally competitive and supports future investment in innovation.”

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