Reverse cuts to R&D tax credit SME scheme, keep it open to smaller claims

The Director General of the Institute of Directors has written an urgent letter to the Chancellor in advance of the forthcoming Budget to urge “in the strongest possible terms” the reversal of planned cuts to the generosity of the SME tax credit scheme, and also to resist the introduction of a lower threshold to any future claims.

The IoD’s intervention is in addition to their previous Budget representation that called for greater investment in skills, capital and net zero. This additional ask is driven by real-time data coming through from IoD members on the negative impact of the proposed cuts to the SME scheme. Early results in a live survey of members who currently use the SME scheme show four in ten agree that the change ‘has caused us to reduce our total planned spend on R&D’.  The generosity of the SME scheme is planned to reduce from 230% to 186% in April 2023.

In addition, the IoD is concerned by a suggestion in the current ongoing Treasury consultation (closing 13 March) that a de minimus threshold may be introduced for future claims. If introduced, this would undermine the policy’s aim of boosting the culture of innovation in the UK.

Jonathan Geldart, Director General of the Institute of Directors, said:

“We are now very concerned that the changes announced in the Autumn Statement will lead to less innovation in the very near future, just at the time that the focus of government policy is rightly shifting to measures designed to raise the sustainable rate of economic growth.

“We also strongly oppose the introduction of a lower limit. It seems perverse to be restricting access to the scheme for firms with smaller budgets when the purpose of the policy is to spur a culture change in the wider economy towards greater routine innovation. We do not think it is possible or desirable to judge the additionality impact of the policy on the basis of the size of the budget or the nature of the company concerned.

“I have therefore written to the Chancellor to give further detail, including new evidence from members affected and we urge him to take swift action to reverse the proposed cuts in the March Budget.”

The full letter to the Chancellor can be viewed here.