The UK government's changes to R&D tax relief credits have been met with a mixed reception following the Spring Statement on Wednesday.
Delivering the statement in the House of Commons, Chancellor Jeremy Hunt revealed the government's plans to roll out an ‘enhanced’ tax relief package for SMBs across the country.
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Under the plans, businesses that currently spend 40% or more of their total expenditure on R&D will be able to claim a credit worth £27 on every £100 spent.
Hunt insisted that the tax relief package amounts to more than £1.8 billion in support for SMBs across the UK and will help some 20,000 firms access vital support.
However, while the announcement has been welcomed by some, critics note that this only equates to a “partial climbdown” of widely criticised cuts unveiled during the Autumn Statement in November last year.
Jay Bhatti, R&D tax relief specialist at MHA, told IT Pro that the new tax credit for SMBs doesn’t “fully reverse the damage” caused by the Autumn Statement, which brought in a reduction of the tax relief rate from 130% to 86%.
Research from Coadec suggested that startups were expected to lose up to £100,000 on average as a result of the Autumn Statement's proposals.
Dom Hallas, executive director at Coadec, said the 'enhanced' package represents “some progress, but it’s still not great”.
“R&D tax credits will be worse than they were before Autumn,” he said, “but better than they were before today’s new ‘enhanced’ credit for R&D-intensive firms who spend over 40% on R&D.”
Hallas added that based on initial calculations, most SMB founders will now get back around 18.5 pence on qualifying R&D relief while only the most R&D-intensive firms will receive the full 27p on the pound highlighted in the Spring Statement.
Bhatti said that the recent 'partial climbdown' will disappoint a significant number of SMBs currently operating across the UK, and negatively impact startups with high loss rates.
“We need to remember that the Autumn Statement in 2022 saw a blanket reduction in the SMB tax relief scheme. This involved the enhancement rate shifting from 130% to 86% from 1 April 2023 and limited the rate at which the cash credits could be generated by surrendering losses,” he said.
“Startups with high losses were especially affected by this. A high loss-making startup undertaking highly risky and cutting-edge technological development saw its cash credit on R&D spend go down from 33p to 19p per £1 of R&D spend.”
He said that there is now a pervasive “sense of disbelief” among SMBs over the government’s handling of the tax credits fiasco.
“The government continues to talk about innovation-driven growth, and yet specifically discriminated against R&D intensive startups. The Spring Budget does partially represent a climbdown, but not a complete one."
Spring Statement prioritises large enterprise
Anne Glover, CEO at Amadeus Capital Partners, told IT Pro that while the tax relief changes should be welcomed, the announcement could create lingering concerns over an apparent prioritisation of support for larger enterprises.
“I welcome the Chancellor’s announcement outlining a targeted R&D tax credit, as well as substantive investments in the UK’s AI and quantum computing sector,” she said.
“However, the government’s decision overall to prioritise incentives for larger companies over SMBs still brings some risk of undermining the next generation of companies that we hope will become the tech giants of the future.”
