UK Spring Price range: Authorities trumpets improved tax aid scheme for ‘R&D-intensive SMEs’

U.Ok. Chancellor Jeremy Hunt went a small manner towards addressing considerations over proposed analysis and improvement (R&D) tax credit score cuts for small-and-medium sized enterprises (SMEs). However he stopped in need of the u-turn some had hoped for following the Authorities’s Autumn Statement last November.

Immediately’s announcement got here as a part of the U.Ok.’s Spring Price range, the place Hunt revealed various investments into the expertise sector, together with plans for a £1 million annual AI prize, quantum investments, and a brand new £900 million ‘exascale’ laptop.


The R&D Tax Credit score scheme was first launched by the U.Ok. Authorities again in 2000, designed to entice companies to put money into innovation. By way of the scheme, SMEs can qualify for tax aid for R&D expenditure, which could cowl medical trial prices, supplies, and staffing, whereas loss-making companies can apply for money tax credit.

Beneath the scheme, firms are classed as SMEs if they’ve fewer than 500 workers, and a turnover of lower than €100 million or a steadiness sheet that falls under €86 million. In the event that they meet that standards, loss-makers can at the moment apply for an R&D declare of 33%, or 33p for each £1 they spend on R&D. With the modifications introduced final November, nevertheless, that determine was set to drop to 18.6%, or 18.6p for each £1 spent on in-house R&D — successfully a 40% lower.

The announcement had sparked significant criticism from throughout the enterprise and expertise spectrum, with the Coalition for a Digital Financial system (COADEC) concluding that the typical startup might stand to lose round £100,000 per yr. And in reality, the transfer had stunned many, significantly given Hunt’s much-trumpeted mantra about making the U.K. the next Silicon Valley.

In his finances at present, Hunt didn’t do an about flip as such, provided that the beforehand introduced discount will stay in place — nevertheless, loss-making “R&D-intensive” startups on the market will obtain a top-up. Those who spend 40% or extra of their complete outgoings on R&D (which is so much) will be capable to declare a tax credit score of 27%, or £27 for each £100 spent.

“Which means an eligible most cancers drug firm spending £2 million on analysis and improvement will obtain over £500,000 to assist them develop breakthrough therapies,” Hunt mentioned, including that the general package deal quantities to round £1.8 billion.


However nevertheless we have a look at this, all SMEs that beforehand claimed credit for his or her R&D investments will nonetheless be down ranging from April 1 in comparison with earlier than. In complete, the Authorities mentioned that some 20,000 startups will profit from R&D scheme general, however solely round 11,000 will qualify for this new top-up portion: 1,000 from the pharmaceutical and life sciences business; 4,000 from laptop programming, consultancy, and “associated actions,” equivalent to AI; and round 6,000 corporations from different segments equivalent to manufacturing.

Mark Smith, companion at Ayming, a consultancy that helps companies safe Authorities R&D funding, says that at present’s announcement is a tacit acknowledgement from the Authorities that its choice final yr to chop tax aid for all SMEs “undermines its ambition to make Britain the subsequent Silicon Valley,” although this newest redress is considerably restricted.


“The Authorities’s new funding for R&D-intensive companies will permit the U.Ok.’s most revolutionary firms to do what they do finest,” Smith mentioned in a press release issued to TechCrunch. “The construction the Chancellor ran by means of sounds smart and clear, with 40 % of spend being a simple determine and purpose for others to work to. Nevertheless, it’s much more focused and subsequently not as accessible. Forty % of spend on R&D could be very excessive, so solely a really small portion of U.Ok. companies might be eligible.”

On prime of that, it’s not fully clear how the brand new laws might be utilized, and to what particular disciplines, even when it has recognized broader industries.

“Whereas its definition of ‘research-intensive SMEs’ is evident, we don’t know which firms and what exercise might be eligible,” Smith continued. “It will be nice to see inexperienced innovation integrated into this. It was a bit of disappointing to not hear extra point out of funding regarding R&D in environmental applied sciences, which the U.Ok. may very well be a world chief at. To drive ahead the sustainable transition, particular tax incentives have to be thought-about round inexperienced R&D. If they will embrace that in definitions, it might present a lift each to our innovation and net-zero aims.”