‘It’s encouraging to see that innovation is such an integral pillar of the UK’s economic policy. Upgrading the UK’s R&D ecosystem is exactly what I would be doing if I was Chancellor’, says Njy Rios, Director for R&D Incentives at Ayming UK.
But today the Government has essentially just kicked the can down the road. The R&D community has already contributed to several extensive consultations into UK innovation over the last couple of years, including one on the R&D tax relief schemes.
The Chancellor is right to be thorough and work closely with experts in the space. The consultations are also clearly being listened to and supporting progress considering the introduction of data, cloud computing and pure maths into the qualifying cost.
But we need to see more concrete changes, and at greater speed. Reform is now long overdue considering the scheme is 20 years old and hasn’t had any substantial changes for years. The UK may have just announced its largest ever R&D budget, but the reality is we won’t hit the 2.4% of GDP spending target by 2027 unless reforms are spot on.
Ultimately, these reforms will have a bigger impact on the UK’s R&D landscape than any of the Government’s other initiatives to become a ‘science superpower’. Done right, they could supercharge UK productivity.
The reforms to the R&D tax credit scheme Sunak will announce today will have a bigger impact on the UK’s R&D landscape than any of the Government’s other initiatives to become a ‘science superpower’.
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.
Recent comments suggest the Government is nervous of the scheme’s cost projections and may pivot the scheme towards big companies over SMEs. Judging by recent comments from Sunak, they might be 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.
It also seems counterproductive to reduce SME support due to increased costs. One of the Government’s main goals has been to increase uptake, so we should not backtrack now that people are finally taking up the scheme.
High-quality R&D should stay centre stage
Of course, fraudulent claims are a valid concern, as identified as a problem in HMRC’s annual report. Such claims do, however, make up a small minority, and it would be disproportionate to change the schemes at the expense of those using the scheme legitimately. The high-quality R&D of most applicants should not be overshadowed by some unscrupulous players.
The R&D tax credit system may not be perfect, and it may not deliver the investment the Government hopes for in comparison to other OECD countries, but we know it makes a huge difference to our SME clients, who are more dependent on the scheme than large companies. 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.