My name is Rhys, a first time dad blogging about my adventures and experiences of being a parent. [email protected]

New figures show SME investment in R&D was booming before Government axed tax incentive

Welsh flag (Adobe Stock)

Responding to the latest government figures on R&D Tax Credits for Year 2021 to 2022, Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:

“Today’s figures show a huge increase in SME expenditure on R&D was driven by the R&D Tax Credit Scheme, prior to cuts made by the Government that came into effect in April this year.

“The figures align with our latest research on innovation, with 46% of small firms telling us that extra tax relief would encourage them to innovate.

“Our own research also shows 64% of small firms which applied for R&D tax relief in the last three years have improved cashflow for their business, while over a half (55%) increased their investment in R&D.

“Two-fifths have used the tax credits to increase their investment in future projects, and more than a third of recipients say it has led them to undertaking projects that would not have happened otherwise.

“Government cuts to R&D tax relief, even for R&D intensive firms, are self-defeating, especially when countries such as France and the US are going in the opposite direction.

“There has yet to be an official assessment on the impact of R&D tax credits cuts on small firms. The Government should monitor this space and publicly publish a review of the impact on the levels of R&D conducted.

“We’re concerned about HMRC’s recent clampdown on R&D tax relief recipients. Its heavy-handed approach has taken a toll on start-ups and small business owners, who have to spend hours or even days to dig up evidence for claims dated back not only months but also years.

“Clamping down on genuine abuses of the system is one thing, but HMRC causing needless stress and anxiety for firms who have claimed in good faith often on the advice of expert intermediaries is another. We urge HMRC to review its compliance activities and, while ensuring that it accepts genuine cases for relief, it should not be heavy-handed, aggressive or inconsistent.

“We also ask the Government to reconsider merging the two R&D tax relief schemes – the RDEC and the SME scheme – especially within the short timescales it sets itself. But if they are to merge, a higher rate of tax relief should be given to small firms.”