Why R&D tax cuts hit SMEs hardest?

How will this hurt the tech sector and innovation?

The UK government seeks £4.5 bn in savings from R&D tax credit cuts by targeting SMEs and start-ups.

The Autumn statement used a blunt instrument to attempt to tackle spurious claims but really it was an easy way of saving the government money.

We all agree some of the claims are spurious and not related to genuine innovation and that the system needs to be re-organised, but slapping SMEs and boosting large companies is an unusual approach to say the least.

On one hand the Chancellor wants to “combine our technology and science brilliance with our formidable financial services to turn Britain into the world’s next Silicon Valley”, and on the other with the Government aiming to “rebalance the generosity of reliefs” hand he has cut funding by 44% from 1 April 2023.

SMEs have R&D investment plans over several years with budgets including R&D tax credits … I wonder how many included the risk of these being cut by 44% and with only 4 months’ notice ?

Innovation often happens in smaller businesses unbridled by the ‘group think’ found in large corporates, just look at the ‘outsourced R&D’ model in the pharma sector where they court and buy up smaller companies to generate new chemical entities and future blockbusters!

UK Plc already invests less in R&D than other advanced economies, so how does this support innovation I wonder?  Reducing R&D tax relief for companies with up to 500 employees will surely reduce efforts to boost the UK’s poor productivity.

I think this is a blunt instrument which will cause tech start-ups and their investors to review UK attractiveness and even a few to leave the UK.

So far at least Patent Box seems to remain untouched.

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