“It has long been an axiom of mine that the little things are infinitely the most important.”
― Sir Arthur Conan Doyle, The Memoirs of Sherlock Holmes
The latest government Innovation Strategy has recently been published and can be viewed here;
The strategy makes little mention of R&D Tax Relief and Credits, in a lengthy document coverage amounts to a paragraph (From page 31 to 32). It references the government consultation announced in the budget and on which a decision is awaited.
A real concern exists that when decisions of this nature are made that the “little things” or more accurately SMEs tend to be overlooked by the government. Large companies are far more effective at looking at the big picture, lobbying government, applying for Grants, and reporting data which aids their agenda. SMEs tend to be hard pressed, particularly in the difficult Covid times in which we live, and blinkered around day to day operations. It would be hoped that trade bodies would represent SMEs effectively but too often money talks and their agendas are dominated by larger members who pay greater dues and support the aspirations of trade body leaderships through sponsorship. Small voices are often not heard.
SMEs like R&D Tax Relief or Tax Credit claims because if they qualify they can claim. Unlike Grants it is neither a competition or a beauty show limited to specific sectors. It is also not a centralised “command and control” type scheme or a waste of time with an uncertain benefit. Further it would be odd for a conservative government to think that the public sector will make the best judgments about UK innovation? As opposed to the innovators? That is an approach of the Left not the Right.
Has the government even used the right statistics in analysing the SME scheme? The generally used UK definition is fewer than 250 employees (To make a simple point I will ignore turnover and balance sheet tests). But the definition used in the R&D schemes is fewer than 500 employees (The turnover and Balance sheet tests are also twice the size). Therefore, when in the hastily compiled recent consultation on R&D claims HMRC talked about a lack of additionality (additional investment) from SME R&D claims how did they define an SME because if they put companies with 250-500 as large companies, as most ONS stats do, then they made a mistake. Companies with 250-500 employees, and below the other thresholds, claim as SMEs.
While definitions may be a little unclear, what is clear, is that SMEs are important to the UK economy. According to the Federation for Small Business (FSB). “SMEs account for three fifths of the employment and around half of turnover in the UK private sector.” Source https://www.fsb.org.uk/uk-small-business-statistics.html.
What is also clear is that for SMEs, claiming R&D Tax Relief or Credits, is that they are important to them. I don't need to evidence this. We work with about 700 companies a year to assist them in claiming the relief, it is important to them. Losing the benefit from R&D claims for SMEs would hurt innovation. It would hurt the commercialisation of R&D, it would hurt the development of a skilled workforce, and it would hurt UK PLC. On that basis I would ask the government to look at the “little things” when making big decisions.
Chris Toms – Director RandDTax.