Chancellor Jeremy Hunt’s Budget will stimulate innovation and provide a much-needed boost for Britain’s small and medium enterprises (SMEs), a UK-based economist has predicted. However, Mark Ayming, a Partner in R&D Incentives and Grants at business performance experts Ayming UK, also said the Government needed to go further to provide incentives for businesses specialising in research and development.
During his statement, Mr Hunt unveiled a new R&D scheme for 20,000 SMEs in the UK, to be introduced from April 1, 2023 and worth roughly £500million per year.
He committed to considering the case for further support for R&D intensive SMEs, and is targeted specifically at loss making businesses.
A company will be considered R&D intensive where its qualifying R&D expenditure is worth 40 percent or more of its total expenditure.
Mr Ayming told Express.co.uk: “The Government clearly recognises that its decision to cut tax relief for all SMEs in November undermines its ambition to make Britain the next Silicon Valley.
“In particular, the Government’s new funding for R&D-intensive businesses will allow the UK’s most innovative companies to do what they do best.
“The structure the Chancellor ran through sounds sensible and clear, with 40 percent of spend being a straightforward figure and goal for others to work towards.
“However, it is a lot more targeted and therefore not as accessible. 40 percent of spend on R&D is very high, so only a very small portion of UK businesses will be eligible.”
The Government estimated about 8,000 businesses could benefit, amounting to 10 percent of current claimants, Mr Ayming pointed out.
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However, he warned: “All other small businesses that don’t meet the threshold will still see a cliff edge in funding, which will most certainly have an impact on the UK’s innovation as a result.
“Furthermore, while its definition of ‘research-intensive SMEs’ is clear, we don’t know which companies and what activity will be eligible. It would be great to see green innovation incorporated into this.
“It was a little disappointing not to hear more mention of funding relating to R&D in environmental technologies, which the UK could be a world leader at.”
In order to drive forward the sustainable transition, specific tax incentives needed to be considered around “green R&D”, Mr Ayming urged.
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He added: “If they can include that in definitions, it could provide a boost both to our innovation and net-zero objectives.
“As we enter the new tax year, businesses outside of the life sciences and tech sectors will be allocating their innovation budgets without knowing how the reduction to the scheme will affect them. The sooner the Government can provide clarity, the better.
“In addition, the Government’s new rules around capital expenditure will help to stimulate innovation.
“These will allow companies to reduce their tax burden by investing in assets that are then used for R&D activity. It is less direct but ultimately allows businesses to invest more.”
