UK government admits small, R&D-intensive businesses need more tax relief

[ad_1]

UK ministers have opened the door to additional research and development tax support for small businesses following an outcry from trade bodies over plans to scrap an existing scheme used to fund innovation.

Tech founders and business groups in November criticized Chancellor Jeremy Hunts’ proposals to cut R&D tax credits at a time when the government is trying to talk about its ambitions to make the UK a scientific superpower.

Credits are widely used by biotech and technology start-ups, which are at the forefront of advances in innovative treatments and emerging technologies such as quantum computing.

But in a consultation paper released on Friday, the government said it recognized the reform created challenges for some R&D-intensive small and medium-sized businesses and those in the life sciences sector in particular. He added that there was merit to the case for additional support.

The promise of additional help for SMEs was met with caution by business groups, who added that it was unclear what kind of support ministers would offer and to how many businesses.

Some also said the proposals to merge two separate tax credit schemes risked making the situation worse for SMEs, with support still expected to be below the level it was before Hunts’ fall statement in November.

The government plans to make tax credits for small businesses much less generous from April. He says the UK has one of the most generous R&D tax relief schemes, but is concerned that the level of investment in R&D by UK businesses is lagging behind to other countries.

Whitehall officials said the reduction in the tax credit system was designed to address concerns about fraud and abuse.

Business groups have been in talks with Treasury officials since Hunt announced the reforms. Recent discussions have suggested that the Department of Finance is open to further helping companies in the technology and life sciences sectors in particular, according to people familiar with the matter.

That may mean a more targeted approach, these people say, with officials reluctant to give up too much of the cost savings from the program cut.

Dom Hallas, head of Coadec, which represents UK start-ups, welcomed ministers’ recognition of the challenges posed to tech start-ups by the potential changes.

But Craig Beaumont, head of external affairs at the Federation of Small Businesses, said the consultation only covered the period to April 2024, a year after cuts to small business R&D in April 2023.

We appreciate the change in tone and the commitment to look at the issues we have raised…and hope this will be followed by a transition period for 2023-24, he said. It doesn’t make much economic sense to cut back in 2023-24 only to rebuild in 2024-25.

Andrew Bennett, head of policy at Form Ventures, which advises and invests in UK start-ups, said the impending tax credit cuts were what really mattered to portfolio companies. At a minimum, the existing regime for SMEs should be maintained until a new regime is put in place.

Under the current regime, SMEs can claim a rebate on around a third of their R&D expenditure, compared to 13% for large companies. The figure for large companies is expected to rise to 20% in April.

The prospect of consolidating spending into a single program meant that R&D-intensive companies might approach this with a bit of trepidation, said Neil Ross, associate director of policy at business group TechUK. This potentially opens the door to further reductions.

Martin Turner, head of policy and public affairs at the BioIndustry Association, the biotechnology trade body, said the merger of R&D tax breaks was a great opportunity to reduce fraud and support the most valuable companies. on the economic plan.

But he warned that the government also risked scoring its own goal by removing a key policy that had supported the growth of life sciences.

[ad_2]