20 March 2023
What the Spring Budget means for R&D and innovation
Topics:
Budget
Services:
Tax Reliefs including R&D
Following cuts to Research and Development (R&D) tax relief in the Autumn Budget, there was significant uncertainty about the future of SME innovation.
In his Spring Budget, Chancellor Jeremy Hunt announced a partial reversal to last year’s tax credit cuts.
However, the latest update will only reward research-intensive firms that spend 40 percent or more of their total expenditure on R&D, leaving many SMEs out in the cold. The Chancellor also revealed additional measures designed to tackle R&D abuse, improve compliance and address anomalies.
Innovation was another primary focus in the Spring Budget, with plans to invest more heavily in the UK’s technology sector and high-growth businesses.
Watch the full video below:
R&D changes and implications
The Chancellor’s new scheme is targeted at loss-making, R&D-intensive SMEs. A company is considered “R&D intensive” when its qualifying R&D expenditure is worth 40 percent or more of its total expenditure.
Eligible companies will be able to claim £27 from HMRC for every £100 of R&D investment. This is compared to £18.60 for non R&D-intensive, loss-making companies.
Whilst this wasn’t the U-turn some were hoping for, this top-up is welcome. Sara Andrews, Tax Partner for Incentives & Reliefs, said:
Following on from the Autumn Statement, it’s a relief to see that the government has maintained the level of support for R&D-intensive SMEs.
Understanding the impact
David Fort, Partner at Haines Watts, identified a shift towards a more robust system, but argues there’s a balance to strike to ensure people are still able to take advantage of R&D incentives.
We are feeling some clients pushing back a bit because it's becoming onerous to provide the information. A couple of years ago, it was quite a good incentive. It still is, it's just the amount of paperwork.
With the added complexity in mind, Tax Director Ian Haynes emphasised that Haines Watts is here to help:
I think it's important that we try and educate our clients as best as possible and let them know what the new changes are and how they can benefit them. We can make sure that everybody that can benefit does benefit.
More investment in innovation
The proposed funding injection for the UK’s technology sector also addressed concerns generated by the Autumn Statement.
A new focus on R&D-intensive industries and innovative companies included the Long-term Investment for Technology and Science (LIFTS) initiative and ambitious targets for quantum technology investment.
According to Haines Watts Tax Partner, Martin Gurney, incentives in this area should encourage investment not only from UK businesses but external investors too.
You're incentivising those who are undertaking that kind of work, but you're also attracting others to the market to invest in the UK.
Martin also added that whilst language around Brexit is often political, “it does demonstrate that we have a little bit more freedom to try and differentiate ourselves without being hamstrung by other jurisdictions”.
Refocused Investment Zone programme
Another topic of interest is the Investment Zones programme which will see £80 million in support for 12 regions.
Manchester-based David said he’s “intrigued” to see what this looks like and this devolution away from Westminster should be encouraged as “a step in the right direction”.
So what’s next?
Some viewed the Spring Budget as unsurprising or even disappointing, but there are major new opportunities for innovation. As Sara reflects:
In these uncertain times, innovation is crucial in order to help businesses bounce back and thrive in the long term. The support from the relief for smaller R&D-intensive businesses will hopefully offer confidence for those organisations to press ahead and push the boundaries of their respective industries.
For those feeling unsure what the latest announcement means for their business, the Haines Watts team is on hand to offer expert advice and support. Get in touch with us here.
