Call for R&D tax credit reform

15 November 2022

Onward, a think-tank with close links to the Conservative Party, has produced a policy paper calling for reform of R&D tax credits.
 
It says tax credits for SMEs should be reformed along the lines of the RDEC scheme for large companies and should have a consistent rate.  Definitions should be changed to make the scheme less open to fraud and research and development allowances (RDAs) should provide a cash credit for loss-making firms.  “This would support growing firms to make long-term commitments to R&D in the UK in a time when the cost of funding capital expenditure is increasing,” Onward says.
 
While strongly supporting effective incentives, Onward argues that the scheme has become extremely expensive.  “Costs [to HM Treasury] of the SME scheme have risen from £705 million in 2013-14 to £4.2 billion in 2020-21. The R&D tax credits scheme for larger firms has risen from £930 million to £2.4 billion over the same period… The cost of the UK’s R&D tax incentives are the largest of comparable countries at 0.33% of GDP, with France in second place with 0.28% and the OECD average sitting at 0.12%.”
 
Announcements on the R&D scheme may well be included in chancellor Jeremy Hunt’s autumn statement on November 17th.
 
Link to report

 
*Will Tanner, who founded Onward in 2018 as was its chief executive, has just become deputy chief of staff to prime minister Rishi Sunak.