Saving R&D Tax Credits
Today we’ve published our latest paper on R&D Tax Credits. It warns that without changes, the Government’s plan for R&D tax credits will see many tech startups struggling to survive and many more looking to move abroad.
Startups have told us that under current plans they could see an average drop of £100,000 per year. For many, this risks being the last nail in the coffin amid a difficult economic and investment environment for early-stage tech companies. There are fears of high quality, technical jobs being lost with 73% of startups surveyed saying they would be unable to pay staff.
Meanwhile, in the short term, the poor administration of the scheme by HMRC is driving offshoring of development, with 84% of founders considering moving their startup elsewhere. We are urging the Government to tweak the rules for the ‘enhanced’ tax credit – to ensure more innovative firms are able to access the more generous scheme based on R&D intensity.
Amidst concerns of fraud on the old scheme, the paper also suggests introducing a minimum spend floor that will reduce the strain on HMRC and eliminate high volume/low cost erroneous claims. The paper outlines steps to root out nefarious tax advisors contributing to the unruly caseload.
Additionally, we recommend short-term measures to help HMRC target inefficiencies in the scheme by modernising sectoral categories to find sectors with higher rates of error. One founder told the Startup Coalition that an HMRC Agent had instructed them that “software” no longer counted as R&D – it is abundantly clear that something is broken.
Unless action is taken, real R&D will flee the UK at a time when the Government is aiming for the UK to be a science and technology superpower.