Finance · 22 November 2017

Autumn Budget 2017: R&D tax relief climbs to 12 per cent, but small firms left out

R&D tax relief
Many believe too much focus is placed on industries such as AI when discussion turns to R&D

Chancellor Philip Hammond used his speech to indicate his belief that by continuing to invest in Britain’s infrastructure, skills and R&D, “we will ensure the recovery in productivity growth that is the key to delivering our vision of a stronger, fairer, more balanced economy”.

Based on new forecasts provided by the Treasury, total support for R&D (research and development) will increase by a third by 2021-22.

“The increase in R&D tax relief is welcome, but is aimed at large companies who are entitled to Research and Development Expenditure Credit (RDEC) relief. So far no announcement on changes on the R&D regime for SMEs, which arguably need more help than large companies,” said Genevieve Moore, partner and head of corporate tax at Blick Rothenberg.

Matt Watts, head of R&D at professional services firm Smith & Williamson, said limiting the increase to R&D tax credits for the large company scheme sends a mixed message to British businesses.

He added: “The R&D tax credits is a popular relief which is promoting investment and creating jobs. Why should only big business benefit when it’s our smaller businesses we need to be supporting?”

In an official statement, the government said it would, alongside a new pilot to expedite R&D tax relief claims, launch a campaign to increase awareness of the eligibility for R&D tax credits among SMEs – working with businesses that develop and use key emerging technologies to ensure that there are no barriers to them claiming R&D tax credits.

Jenny Tragner, director at R&D tax credit consultancy ForrestBrown and member of HMRC’s R&D consultative committee, said: “Given that Phillip Hammond said the 5.5m small businesses are arguably the businesses creating his ‘technological revolution’, we would suggest that, as a minimum, the SME R&D tax credit rate needs to be increased (to 137 per cent) just to maintain its current level of generosity.”

Stephen Dyson, head of industry 4.0 at Proto Labs, welcomed the R&D tax relief change, saying Britain’s industrial, engineering and manufacturing industries will be “bolstered” by this investment.

“This additional financing will also provide welcome support for businesses trying to encourage more young people to pursue careers within manufacturing,” he added.

Alongside the commitment, the government unveiled a new Advanced Clearance Service for R&D expenditure credit claims – an effort to take some of the strain off of HMRC.

In July, HMRC hired 800 extra staff so it could speed up the help provided through helplines – bringing it back to 2013-14 staffing levels. In 2015, a report from Citizens Advice found people were spending an average of 47 minutes waiting to have their call answered when contacting HMRC.

This is all part of a wider £155m investment in additional resources and new technology for HMRC. This investment, the government has stated, is forecast to help bring in £2.3bn of additional tax revenues.

Mark Tighe, CEO of R&D tax firm Catex, was complimentary of the Autumn Statement announcement, but he did have complaints about the language used.

“While the chancellor has chosen the future, one element of his thinking about R&D remains stuck in the past. He once again made the same mistake of overly associating the research and development revolution with the most cutting-edge technologies, such as driverless cars, AI and 5G.

“Yes, these sectors symbolise the vanguard of innovation but we should not forget that many everyday businesses are also performing R&D day in, day out.”

The government, he believes, needs to drive greater awareness of what constitutes R&D in order that the many companies performing it unwittingly can take advantage of the lucrative tax reliefs available.

“The lack of knowledge surrounding what constitutes R&D is a fundamental problem as the money companies get back through R&D tax credits is generally reinvested in further R&D, which is a virtuous circle for any economy seeking to increase its productivity and compete on the international stage,” Tighe warned.

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ABOUT THE EXPERT

Hunter Ruthven is the editor of Business Advice. He is also the editor of Real Business, the UK's most-read website for entrepreneurs and business leaders at the helm of growing SMEs. Alongside this, he is part of the team that hosts the Growing Business Awards, First Women Awards and Future 50 initiative. Prior to his role at Real Business, he was editor at competitor website Growth Business and head reporter at M&A Deals. Throughout his career he has interviewed leading entrepreneurs including Alex Chesterman, Lopo Champalimaud, Sarah Wood, James Averdeick and Alex Saint.

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