Extension of R & D tax relief focuses on large companies

Philip Hammond has announced a 1% increase in the credit available for large companies carrying out qualifying research and development. The aim of this relief, and its extension, is to increase productivity, innovation and promote growth. The increase was not, though, extended to SME’s – was this a missed opportunity?

The Chancellor today committed a further £2.3bn in investment in R&D, as well as increasing the main R&D tax credit to 12% (from 11%).

However, in a Budget emphasising the need for innovation and skills growth, the increase only related to the Research and Development Expenditure Credit (RDEC), generally applicable to large companies, leaving the SME rate unchanged. Whilst the existing scheme for SMEs is still more valuable, limiting the increase to R&D tax reliefs for the large company scheme sends a mixed message to British businesses.

R&D tax relief promotes investment and creates jobs, but the changes could have gone further. At a time when small and medium sized businesses are facing challenges, including the adoption of the National Living Wage and Apprenticeship Levy more could have potentially been done to support them innovate.

A significant additional challenge is that many smaller businesses, particularly in traditional sectors such as construction, currently have a low understanding of the relief and how it might apply to them. It was therefore welcome to see the announcement of measures to increase awareness of the eligibility of R&D tax credits for SMEs further; but, in the meantime, we have built an essential guide to understanding and claiming R&D tax reliefs.

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