Innovation update

The headline figure is impressive: the Chancellor has pledged total annual investment in research and development to c. £20 billion by the end of this Parliament.

The key questions from this autumn budget are, does this investment go far enough, is it attractive enough, and will it be cohesive enough to create a platform from which the Government can meet its own target of R&D spend reaching 2.4% of GDP by 2027? And in doing so will it effectively address the key scientific and technological challenges of the time?

Today’s statement suggests that the UK Government’s innovation strategy and investment post-Brexit (in all forms) may be adopting a more UK-centric approach to innovation reliefs. We would welcome additional clarity that will enable the UK and international businesses and organisations to understand how these investments can be accessed, whilst recognising that great innovation is often collegiate in nature and delivered by international supply chains who are considering locating themselves (and their employees) in the UK.

Operationally, we welcome the Government’s intention to set out plans to tackle abuse of and improve compliance with, the R&D tax reliefs later in the autumn. 

It is also positive that the Chancellor has reacted to R&D consultation feedback and targeted changes to software costs that can be claimed by companies undertaking qualifying activity. The current rules were set out 20 years ago and did not reflect current technology usage and the inherent costs of cloud-based computing or data streaming as part of development activities. These changes are likely to benefit existing claimants who currently exclude these costs.  

However, with planned rises in CT rates, an opportunity to deliver broader support for Large and SME claimants via an increase in “RDEC” and SME “Super-deduction” rates was an opportunity lost. The upcoming increase in CT rates will have the effect of diluting the value of the benefit to claimants at a time when UK attractiveness to inward investment is a key component of economic growth strategy post-Brexit and the pandemic.