IoD R&D tax credit SME scheme letter to the Chancellor
The Institute of Directors has today written to the Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, around the R&D tax credit SME scheme.
Further to my letter of 1 February regarding Spring Budget 2023, I am writing again on behalf of our members to press you in the strongest possible terms to reverse your decision at the Autumn Statement to reduce the generosity of the SME scheme.
We expressed concern about the change in our initial response to the Autumn Statement, however during the course of member research that we are currently undertaking to inform our response to the separate consultation to merge the SME and RDEC scheme, the immediate and negative impact of the change has become increasingly apparent to us.
Of the responses to our survey who currently use the SME scheme, around four in ten agreed with the statement that the reduction in the super-deduction from 230% to 186% ‘has caused us to reduce our total planned spend on R&D’.
In the words of our members themselves:
We are now very concerned that it 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.
I am also concerned at the suggestion in the ongoing consultation that your officials are considering introducing a lower threshold for applications for R&D tax credit. We 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.
Compliance and enforcement
We support recent investment by HMRC to bolster their compliance and enforcement function, and are also supportive of reforms introduced in 2021 designed to crack down on spurious claims.
It would be wrong however to take the view that reducing the volume of applications is desirable to support enforcement. We take the opposite view: an increased volume of (valid) applications is a measure of the policy’s success.
We will be responding to the formal consultation on potentially merging the two schemes before the deadline of 13 March, but given the proximity of the Budget we hope these additional perspectives are useful at this earlier stage.
As ever, we would welcome the opportunity to discuss the matter further.
Director General, Institute of Directors