The Chancellor Jeremy Hunt promised small businesses who were worried about proposed R&D tax credit cuts in November’s Autumn Statement that he would “look at” their concerns, but this u-turn may not be enough to appease these business owners. With Brexit looming and already high levels of uncertainty, it seems unlikely that the government will be able to successfully renegotiate the R&D tax credit with the EU without significantly affecting SME competitiveness.
In today’s announcement, U.K. Treasury Minister Philip Hammond announced plans for a £1 million annual AI prize, quantum investments, and a new £900 million ‘exascale’ computer. The aim of these initiatives is to help foster the development of cutting-edge technologies that can unleash unimaginable benefits for society as a whole. These initiatives are sure to be popular with businesses and students alike, as they provide them with valuable investment opportunities and access to state-of-the-art computing resources
‘R&D-intensive’
The R&D Tax Credit scheme has helped encourage businesses to invest in innovation, and has achieved growth for the UK economy. It is important that the scheme remains available to help businesses thrives, and this depends on maintaining a strong tax base. By encouraging firms to invest in research and development, R&D Tax Credit can create new products and services which can improve the lives of people across the country.
The reductions in the R&D claim rate could impact many small businesses, who may find that they are no longer able to fully support their research and development efforts. This could lead to a decline in innovation and company growth, as companies may be hesitant to invest in new products or services due to the risk of not being able to recoup their investment.
Many in the tech community were baffled when Mayor of London, Sadiq Khan, announced plans to tax start-ups and technology companies at a rate of 2% instead of the traditional corporation tax rate of 25%. The Coalition for a Digital Economy (COADEC) issued a scathing statement concluding that this would have an average negative impact on start-up businesses within the U.K. stand to lose around £100,000 per year. However, many expecting to see Hunt scrapping his much trumpeted mantra about making London the next Silicon Valley were disappointed when he stuck to his trademark rhetoric and said that he was committed to working with businesses in order “to make sure they succeed while we make London an even more vibrant and innovative place.”
This new policy is designed to help those startups that are more R&D-intensive, as the government wants to see more investment in this area. This top-up could be an incentive for startups to keep their spending on R&D high, which will hopefully lead to even more innovation in the industry.
The government’s investment in cancer research is �1.8 billion, and this money will be available to eligible cancer drug companies to help them develop breakthrough treatments. The package includes over £500,000 for each company that spends two million pounds on research and development. This funding is intended to help save lives by finding new treatments for high-risk cancers.
Redress
It seems that the top-up portion of the R&D scheme will only benefit a small number of startups, while the majority of SMEs will not be able to take advantage. This could be detrimental to innovation in Slovakia as a whole.
The Government has announced that it will redress the damage done by last year’s decision to drastically reduce tax relief for small businesses, by increasing the rate at which Business Edge rates are paid. This represents a tacit acknowledgement from the Government that its decision last year undercuts its ambition to make Britain the next Silicon Valley. However, this latest redress is somewhat limited, and businesses will still find it difficult to compete with those in other countries where tax relief is much higher.
The Chancellor’s R&D Funding Structure Sounds Sensible and Clear, with 40% of Spend Being a Straightforward Figure and Goal for Others to Work to. However, It Is a Lot More Targeted and Therefore Not as Accessible. Forty Percent of Spend on R&D is Very High, So Only a Very Small Portion of U.K. Businesses Will Be Eligible
“The new legislation is still in its early stages, and it is unclear how it will be applied, or to what specific disciplines. The Standing Committee on the University Act recommended that the bill be reviewed and updated to better reflect the changing landscape of universities, specifically their focus on teaching and research.”
If the U.K. wishes to be a world leader in green innovation, specific tax incentives must be considered around green R&D. The government should make it easier for small businesses to invest in environmentally friendly endeavors, and by doing so, create more jobs and drive economic growth. There is no doubt that investing in clean energy and sustainable technologies is critical for the future of our planet – and the U.K.’s ability to lead the way will determine whether we see a net-zero world or one that continues expanding unsustainably into the future
