Chancellor warned pre-Statement: don’t alter R&D credit scheme
23 Mar 2022
As Chancellor Rishi Sunak’s Spring Statement is being delivered, UK industry is braced for the effect of predicted changes to the research and development tax credit system.
Commenting just hours before the statement, Njy Rios, partner R&D Incentives at business consultancy Ayming (pictured) said that changes to the scheme that would have a major impact on SMEs and start-ups would be re “deeply misguided”.
“The government has pushed the message that it wants to be a science superpower and investing in start-ups and encouraging innovation within the start-up community will be key to achieving this.”
Credits enable thousands of firms to invest in innovation and new skills they might otherwise be unable to afford, thereby offering opportunities to grow their business.
To qualify for the scheme as an SME, a firm can employ up to 500 staff and command a turnover of just below £100 million or gross assets of £86 million – providing a wide scope for inclusion.
Swingeing reforms to the R&D tax credit scheme would have a bigger impact than any of the other initiatives to develop the UK into a science superpower, warned Rios.
“Reform is definitely welcome since the scheme is 20 years old and hasn’t had any substantial changes for years, but it has to be done right.”
The point was expanded by Fhaheen Khan, senior economist at Make UK, who warned against ignoring what would benefit UK manufacturing best:
“The R&D tax credit scheme is the most commonly used form of innovation support among manufacturers. Any changes to the scheme must be done in close consultation with the manufacturing sector, which is response for 64% of private R&D investment," stated Khan.
“Government must be careful not to throw the baby out of the bath water. While the scheme may not be perfect it should be reshaped and not radically reformed and any suggestions it should be scrapped entirely must be ignored. We look forward to continuing to work with Government to make the scheme work better for businesses of all sizes and ensure the UK can continue to compete on the global innovation stage.”
Recent indications suggested Government is concerned at the scheme’s cost projections and could pivot the scheme towards big companies over SMEs, Rios explained.
She warned that the Treasury was in danger of drawing conclusions too rapidly.
“Not only is the data they have used to justify that the SME scheme is not generating enough investment very old (2017), but the Government should not be too concerned about comparing investment in other regions.
“The UK economy is very SME heavy, and the start-up culture means innovation is different. This makes comparisons difficult and means a reduction in SME support would have a bigger impact in the UK than elsewhere.”
While fraudulent claims are a concern identified as a problem in the recent HMRC’s annual report, these constitute a small minority, so radical overhaul would be disproportionat, insist Government critics.
Added Rios: “It can make the difference between hiring someone for R&D or not, given that many SMEs use their R&D credit specifically to hire new personnel for future R&D.”
