A recent report has come out questioning the UKs R&D tax credit scheme. Their premise states that the 20-year-old policy which delivers a £7.3bn research and development tax credit system is failing to deliver significant additional spending by businesses.
The R&D tax credits scheme was introduced in 2000, offering government funding to support R&D in small and medium sized businesses. In 2002, they added a second scheme offering support to large companies. The treasury released a report showing that for each £1 of R&D tax credit generates between £2.4 and £2.7 of business R&D spending.
The cost of R&D tax credits is now equivalent to a quarter of all UK business R&D. However, this spending has not kept up with the growth of the government’s budget. The report shows that, as a percentage of national income, business expenditure on R&D is between 10-15% lower than before the credits were even introduced. Based on this trend, the government simply cannot meet it’s target of 2.4% of national income being spent on R&D by 2027. The previously believed notion that reducing the cost of R&D (through tax credits) would increase a company’s R&D expenditure is inherently false.
The UK recently estimated an overall R&D spending at 1.7% of GDP (in 2018) which is up just barely from 1.6% in 2000. This number is also significantly below the OECD average of 2.4%. The report also argues that the Treasury’s £1.1bn-a-year Patent Box scheme, a lower rate of corporation tax to encourage commercialising intellectual property, has failed to deliver its objectives given profitable multinationals and other large companies have taken the vast majority of the benefits.
The report concludes by calling for new policies to grow and retain science and technology companies at the risk of losing them to foreign multinationals instead.
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Swanson Reed is one of the UK’s leading R&D Tax Relief consultancies. We manage all facets of the SR&ED tax credit program, from claim preparation and audit compliance to claim disputes.
If you would like to find out more about how your business could benefit from R&D Tax Credit, contact a Swanson Reed R&D Tax Advisor today.
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