The Government has proposed bringing in R&D tax credits for small businesses after plans to cut an existing incentive.
Chancellor Jeremy Hunt cut R&D rebalanced investment incentives towards larger companies in November’s autumn statement which caused a backlash with trade bodies.
The Research and Development Expenditure Credit (RDEC) rate for larger businesses increased by 7 per cent while the small and medium-sized enterprises additional deduction decreased from 130 per cent to 86 per cent.
Tax credits for small businesses will be less generous from April after concerns the UK is lagging other countries in terms of R&D investment.
The decision was also based on fears the generous scheme would be taken advantage of by fraudsters and spurious claims.
Now, plans from a Treasury consultation include the replacement of both these existing R&D tax schemes with a single, combined scheme based on RDEC.
A consultation document from the Government published on Friday acknowledged there was “merit to the case for further support” to SMEs, particularly in the life sciences sector.
The Treasury believe the move will simplify the R&D tax system and bring the UK in line with other countries.
It is expected the level of support for SMEs will still come under what it was prior to the Autumn Statement, however.
Small businesses spent £24bn on R&D in 2021 – 4 per cent more than they did in 2020.
The credits are typically used by tech and biotech companies. The Government recently made claims it was aiming for the UK to become a science superpower.
The FSB are sceptical of the new changes however, saying it “risks a huge amount of disruption for little gain” while others welcomed the decision but said it was unclear how many companies it would help.
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