By Jess Jones
The UK tech industry has welcomed the Chancellor’s plans to create a new “simplified” research and development (R&D) tax relief scheme in his Autumn Statement but has warned there is still work to do.
Chancellor Jeremy Hunt said on Wednesday he will combine the existing R&D expenditure credit and SME schemes and reduce the rate at which loss-making tech companies are taxed, from 25 per cent down to 19 per cent.
Hunt has also lowered the threshold for extra support for R&D-intensive loss-making small to medium enterprises (SMEs) to 30 per cent. The Chancellor, who revealed this policy in the spring, said it will now benefit a further 5,000 SMEs.
Dom Hallas, executive director at the Startup Coalition, is “pleased” about the changes to R&D tax credits. He said: “Allowing more startups to access the enhanced credit will mean more innovation. The scheme still has its flaws, but as a result of the Chancellor’s action the policy is better today than it was yesterday.”
Hunt also revealed measures to redirect pension fund money and new investment into tech and VC, which Hallas said is “critical not just to British growth but to British pensioners too”.
“It’s going to be a long road to delivery but getting the process rolling, schemes gradually consolidated and the BBB vehicle established are a key starting point.”
Hunt had previously come under fire by small businesses when he attempted to scale back R&D tax credits for startups last year, which the Federation of Small Business warned would create an “innovation wasteland”.
Chief executive of Founders Forum Group, Carolyn Dawson, said the simplified R&D relief will cheer UK business founders.
“While we await the full detail, we hope today’s announcements will turbo-charge a generation of small and early-stage businesses, who may now find it easier to access the vital funds to develop groundbreaking ideas and maintain the UK’s position as a hub of global innovation,” Dawson said.
Dr Simon Thomas, the chief executive and co-founder of British chip company Paragraf, has previously been critical of government support for his sector. But he said there are “many positives for businesses” in the Autumn Statement.
The reform to the R&D tax credits scheme is a “much-needed saving” and planning reforms are “very much needed by companies like Paragraf, seeking to expand and acquire new sites in the UK, as the delays from the current system have been detrimental to the expansion and success of British Businesses”, Thomas said.
Others have said the Autumn Statement is a good first step but there is still a way to go.
Laurent Descout, chief executive and co-founder of fintech Neo, believes it makes sense to merge the two existing R&D schemes because they were unclear and constantly changing over recent years.
“However,” Descout said, “the Chancellor must continue to consider the challenges which SMEs face in accessing finance and his previous commitment to offer additional support for those spending large amounts on innovation.”
He added that it is essential for SMEs to continue to receive “the highest rate of relief possible in a merged scheme” to maintain the UK’s reputation as a leading fintech and innovation hub.
The UK has a lot of good start-ups but it often struggles to propel them forwards beyond that, according to Mark Lubbock, partner at London-based law firm EIP.
He said the Chancellor’s plan to create a venture investors academy is “intriguing in improving the skillset of those building these companies but one of the biggest problems such businesses face is the difficulty that investors have in valuing the technology and the efficacy of the rights that protect it.”
“We can see there’s still a long way to go to improve how great ideas can be turned into great companies,” Lubbock said.
Hunt did not announce an increased tax relief for expenditure on digital services in his Autumn Statement. Ian West, head of technology at KPMG, said this was “disappointing” and could result in ‘digital inequality’ between businesses.
“Emerging technologies are often out of reach financially for small organisations. If businesses across the UK are not equally able to use innovative technologies, large organisations with greater resources will accelerate their market lead, resulting in potential digital inequality,” West explained.
Today, the Chancellor also said that universities, scientists and startups should have better access to the computing power they need, so the UK government is investing £500m over the next two years “to help make us an AI powerhouse”.
KPMG research recently found a productivity boost from generative AI could give the UK economy a £31bn boost.
