Changes in R&D tax relief following the Autumn Statement

Our concerns

Our concern is that, in addition to large UK companies, the other big winners are the Netherlands and Ireland, or possibly any European country that now has a more generous R&D incentives package than the UK. In the past, a major selling point of the UK as a location for innovative start-ups has been the stability of the incentives provided. The Autumn Statement has rather shattered that reputation. 

Our R&D team were approached by several companies on the day of the Autumn Statement making comments about possibly looking for other locations. Small businesses are the bedrock of the UK economy, and start-ups are obviously the large companies of the future. We feel that these changes risk damaging this important part of the economy and the government is misunderstanding the importance of R&D tax credits to the SMEs in their battle to grow and prosper in the post-COVID world. We hope that SMEs express their concerns to HMRC and Treasury to force a rethink to the scale and nature of the changes proposed. Reducing the scheme’s benefit to lower fraud is an extreme move, and is harsh on SMEs that rely so heavily on the scheme.

The Chancellor reassured MPs that these scheme changes will not have a detrimental impact on the level of future R&D investment. This is purely based on the R&D investment additionally generated by the RDEC scheme, where each pound given to the large company encourages them to invest more of their cash reserves in R&D when compared to start-up SMEs. Unfortunately, this analysis misses an important point that SMEs are sitting on a finite amount of cash and have minimal ability to increase spending due to the R&D claim cashback. However, restricting this cash injection into a start-up will very likely lead to more businesses running out of money before their product is commercialised or taking longer to develop the product when compared to overseas competitors. Unfortunately, when a policy is simply looking at one KPI, R&D spend per GDP, this can distort policy to the detriment of many highly innovative businesses. 

Let’s end with some good news. The reforms of expanding qualifying expenditure to include data and cloud costs and refocusing support towards innovation in the UK proposed in the Autumn Budget 2021 will be legislated for in the Spring Finance Bill 2023. We will run through these changes in our January R&D tax credits event. 

If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below.