SMEs let down by Autumn Statement

Date: November 17, 2022

Autumn Statement: How is the R&D tax scheme affected?

Changes to the R&D tax relief scheme featured in a long list of announcements made by the Chancellor in this year’s Autumn Statement — unfortunately they made for disappointing reading for SMEs.

For small and medium-sized UK businesses with expenditure on or after 1 April 2023, the uplift rate on tax relief will fall from 130% to 86%, and the tax credit rate will drop from 14.5% to 10%.

The rate for the Research and Development Expenditure Credit (RDEC) scheme will increase from 13% to 20% for expenditure over the same period.

This will all be legislated for in the Autumn Finance Bill 2022, and is a step towards the Government’s development of a single, simplified RDEC-like scheme for all companies.

The Government will consult on the design of this single scheme and will work with industry to understand whether further support is necessary for SMEs who undertake a lot of R&D.

Previously announced reforms of tax reliefs, including targeting abuse and improving compliance, refocusing support towards innovation in the UK and the inclusion of data and cloud costs, will still go ahead and will be legislated for in Spring Finance Bill 2023.

These cuts are a big let down for SMEs

It has taken industry two decades to get SMEs to realise that they’re an important part of the innovation landscape. SME take-up of the R&D tax relief scheme was so low that it was only in 2015 that HMRC was embarking on publicity campaigns to encourage more to claim.

Now SMEs are being let down at a time when they need support the most.

Mark Tighe, CEO of innovation funding specialist Catax, said:

“The change announced to SME R&D tax relief lets smaller UK businesses down at a time when they need it most, and it represents a spending cut that is just as harmful as cuts to public services in the long run. The revenues generated by businesses claiming R&D tax credits are the same pounds that end up running our hospitals and our schools.

“When you break this kind of spending down, these are risk-taking companies who are attempting to do something genuinely new in a bid to grow their businesses and benefit the economy.

“At a time when companies are still yet to see any kind of dividend from Brexit, greater innovation investment is what the UK needs if GDP is to grow.

“It has taken industry two decades to get SMEs to realise that they’re an important part of the innovation pie. These same SMEs are now being told they and their R&D doesn’t matter when it’s their innovations that can prove just as disruptive as those introduced by larger companies. This u-turn is about as counterproductive as it gets when other countries are using exactly the same kind of incentives to get ahead and stay there.

“We can only hope that the Government’s forthcoming single R&D scheme will still recognise the vital importance that SMEs play in the UK economy, and that it will acknowledge and value their contributions and innovations.”

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