SMEs badly short-changed by Autumn Statement R&D reforms

When it comes to R&D tax relief the Autumn Statement was pro-growth in name only and support for R&D in the UK is in a dire state.

In his Autumn Statement, the Chancellor announced a unified R&D Scheme that will come into force from 1^st April 2024. It’s a bad idea and does nothing to fix critical flaws with the UK’s R&D system, especially as this pertains to SMEs.

The consensus amongst UK SMEs is that HMRC is too much trouble to be worth the effort, and there are more attractive taxation and R&D rates available in Ireland. SMEs are put off claiming R&D because of HMRC’s aggressive and bureaucratic treatment of claims. In addition, R&D support is distributed unequally, with disproportionate amounts going to fintechs in the Southeast. The new scheme changes none of this.

The Chancellor has actually slashed the cash available to loss making SMEs conducting high risk R&D before commercialisation. The “R&D Intensive SMEs” sub-category will only benefit 3000 SMEs (as the Chancellor admitted) and we fully expect most of these to be based in the Southeast.

Fintechs and businesses with Oxford or Cambridge links find it easier to claim. This is not Levelling Up. It is actively discriminating not only against other regions in the UK, but other sectors of science and technology that are not fintech-based (like Life Sciences, Robotics, etc).

The reforms have been partly prompted by HMRC finding fraud in some cases, and assuming all cases under investigation are like this. This is like using a hammer instead of a microscope to assess legitimate claims. In fact the problems with fraud have been caused by the lack of investment into HMRC itself (it lacks the resources to administer the scheme properly), and the scheme itself is being blamed instead of addressing how it is administered.