Small firms call on Chancellor to keep R&D tax credits for growth ahead of Autumn Statement

In response to reports that the Chancellor is expected to cut Research & Development (R&D) tax credits for SMEs in Thursday’s Autumn Statement, Federation of Small Businesses (FSB) Policy and Advocacy Chair Tina McKenzie said: “It’s extremely frustrating to see the Government considering rolling back on its own policy success in enabling tech start-ups, inventors, engineers and other small firms to invest in R&D. Boosting SME investment in R&D is exactly what we need now to raise productivity and growth given the bleak outlook for the UK economy.  Cutting the SME scheme while leaving the large business scheme untouched, would see state-supported R&D funding concentrated in the hands of a small number of large corporates – those who are best at employing expert form-fillers, and arguably would have chosen to fund that activity, anyway, without taxpayer stepping in to fund it.

ONS data shows that the value of R&D expenditure performed by UK businesses in 2020 was about £43 billion, largely due to small firms’ increased investment in R&D.

“It is very disappointing for HMRC to suggest they cannot effectively prevent fraudsters taking money from the scheme – huge sums have been pumped into the department in recent years. Their estimates of fraud are extrapolations from compliance data for large and medium sized businesses, which suggests they haven’t even used this extra money to get robust stats. The proper policy response would be to reduce incentives for fraud and reduce the complexity, instead of cutting off access for all small firms to a scheme that continues to drive innovation.

“Reducing complexity would take power away from bad actors driving abuse across different tax schemes and at the same time should make the scheme more accessible for small firms, as would using the vast in-house capacity within HMRC in innovation expertise to encourage small firms to apply and invest in innovation.

“Stripping out support for small businesses on R&D would be a wrong and anti-growth move. We hope the Chancellor will recognise this as he puts the final touches to the Autumn Statement.”