The Spring Budget: What Do Changes to R&D Tax Credits Mean For Your Business?

In his Spring Budget Statement, the Chancellor of the Exchequer, Rishi Sunak, highlighted Research and Development tax reform as a key factor in delivering the government’s vision for an innovation-led economy.

Although the UK has long been recognised as one of the world’s leading nations in research and innovation, the amount UK businesses spend on R&D has dipped below the OECD average. In spite of our tax incentives being some of the most generous, the UK trails behind countries like France, Germany, the US, Japan and Korea in terms of R&D business expenditure as a percentage of GDP. In his budget speech, Mr Sunak admitted that there is room for improvement, as “Something is not working. So, we’ll reform R&D tax credits so that they’re effective and better value for money.”

Incentivising research and development is central to the government’s ambitious Innovation Strategy. In an effort to improve productivity, the Chancellor has emphasised the need to create ‘a new culture of enterprise’ with the expansion of R&D tax incentives playing a pivotal role in encouraging greater investment and technological research.

To this end, the definition of activities that qualify as R&D for tax relief purposes (effective from April 2023) has been expanded to include cloud computing, data and pure maths, which will help drive growth in key areas such as software as a service (Saas), AI, open banking and automation.

In addition to widening the scope of qualifying R&D business activities, the Chancellor is proposing even more generous tax incentives for businesses who want to push forward with their research and development projects.

Momentum Group Managing Director, Tom Verner welcomes the reforms.

“As experienced R&D tax credit consultants, we believe the Spring Budget statement is very encouraging. Every day, we see first-hand how important R&D tax relief is for both SMEs and large corporates wanting to continually improve their products and services to stay competitive. Investing in innovation has its risks, but these tax incentives are a lifeline to businesses and often allow further investment. Our position always been that companies deserve to be rewarded with generous allowances for being bold enough to take on the inherent uncertainties associated with research and development.

We know from our own clients that R&D tax credits have real business value, whether that’s in helping them retain or hire skilled professionals, buy necessary tools and resources or enabling them to stay at the cutting edge of their sector. While the system already offers significant financial benefits to those who qualify, these reforms offer businesses of all sizes the opportunity to compete far more effectively on both a national and global scale.”

While we will all have to wait until the Autumn Budget for the Chancellor’s final decisions, the signs are promising for businesses who are looking for greater freedom and confidence to embrace innovation, and for the growth of the UK economy as a whole.

If you would like to know more about claiming R&D tax credits now, or have any questions about how our tax experts could help you navigate the upcoming reforms, contact our team.