Innovation and R&D were a key focus for the Chancellor’s Autumn statement as the government fully recognises the importance of innovation to economic growth and future competitiveness.

The government pledged £20billion in R&D by 2024-25, a 25% increase and ‘record investment’, growing R&D spending by £22billion by 2026-27.  This is in line with their goal to increase it to 2.4% of GDP by 2027, well above the latest OECD (Organisation for Economic Co-operation and Development) average of 0.7%.

Reforming R&D Tax Credits

Following the consultation period launched in the Spring Budget 2021, more details have been released regarding the anticipated reform to R&D tax relief rules.  As speculated, the scope of qualifying R&D tax relief will now be expanded to cover cloud and computing data.

A welcome improvement, this ensures that investment in R&D expenditure can better reflect ‘modern research methods’.  According to Julian David of TechUK, SMEs using this technology can potentially increase annual turnover by £250k.

Further plans to improve compliance within the scheme are still to be addressed, with more news expected later this year.

R&D in the UK

in a further bid to cement the UK as a ‘science and technology’ superpower, the government will also look to ensure that UK based innovations are rewarded as a priority.  This is in an effort to bring the scheme more in line with those operating in countries such as; the USA, Canada, Hong Kong, Singapore and Australia ensuring the UK remains an attractive place to conduct ground-breaking research.

Currently businesses which are registered in the UK can claim R&D tax credits regardless of where in the world the R&D takes place.  The UK R&D tax relief pays out around £48billion, yet UK business investment is currrently at £26billion.  On announcing this, Rishi Sunak said, “We are subsidising billions of pounds of R&D that isn’t even happening here in the United Kingdom and that’s unfair on British taxpayers.”  However there is already a concern that some of the large international research will no longer be done in the UK as a result of this.  That will reduce growth in R&D which can’t be a positive, not least in meeting the government’s own targets.

More details are expected to be released soon on the parameters of this new focus with changes being introduced from April 2023.

In summary

The Autumn Budget and Spending Review put into practice enhancements to the R&D tax credits scheme seeking to accurately reward businesses for their R&D investment.  Further details will be announced in due course.