Reports: Innovation incentives: big changes coming. Autumn Budget announcement update
R&D is still very much at the heart of Number 10’s plans for driving growth, however, some changes in innovation incentivisation today – specifically around R&D tax credits – may be a blow for many small business owners.
From the Autumn Statement 2022 document:
With less than 1% of the world’s population, the UK hosts 3 of the world’s 10 best universities, has produced up to 13% of the world’s most impactful research and has the second highest number of Nobel Laureates of any nation. The UK also ranks fourth in the Global Innovation Index.
These remarkable achievements in R&D and innovation generate significant economic and social benefits for the whole of the UK and beyond.
Government spending on R&D plays a crucial role in stimulating private sector investment, so public spending on R&D will increase to £20 billion a year by 2024-25, a cash increase of around a third compared to 2021-22. This is the largest increase in R&D spend ever over a Spending Review period.
Incentives and funding
Innovate UK programmes were allocated £2.6 billion across the Spending Review period, which will support the UK’s most innovative companies and leverage private sector investment.
A 35% increase in funding for the UK’s nine Catapults compared to the last 5-year funding cycle was also confirmed. This £1.6 billion investment will allow Catapults to continue to support innovation and commercialisation by providing access to world-leading facilities, skills, and equipment.
Following positive feedback on the Made Smarter Adoption programme rolled out elsewhere in the country, the government confirmed the programme will be extended to the East Midlands in order to help manufacturing SMEs boost productivity through advancing digital technology.
The Advanced Technology Research Centre in Wales will be provided up to £10m of support to deliver a defence-focussed Centre of Excellence Site including high security laboratory space, training and skills infrastructure.
R&D tax relief
One of the biggest announcements relating to innovation funding to come out of this Statement was changes in rates of relief provided by the SME and RDEC R&D tax credit schemes.
The government is citing ‘significant error and fraud in the small and medium-sized enterprises (SME) scheme’ as the reason for these rate changes.
It considers RDEC to be better value but less internationally competitive, so is rebalancing the rates of the reliefs.
- For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
- The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%
- The SME credit rate will decrease from 14.5% to 10%.
These rate changes will be legislated for in the Autumn Finance Bill 2022.
The government will also consult on the design of a single scheme, and says it’ll “work with industry to understand whether further support is necessary for R&D intensive SMEs without significant change to the overall cost envelope for supporting R&D”.
As previously announced in the Autumn Budget 2021, the R&D tax reliefs will be reformed by expanding qualifying expenditure to include data and cloud costs, refocusing support towards innovation in the UK, and targeting abuse and improving compliance.
These changes will be legislated for in Spring Finance Bill 2023.
As previously announced, the government is increasing the generosity and availability of the Seed Enterprise Investment Scheme and Company Share Option Plan.
As a reminder:
- From April 2023, you’ll be able to receive a maximum of £250,000 through SEIS investment, up from £150,000
- The value of options that can be granted through Company Share Options Plans will be increased to £60,000 and share class restrictions will be removed
Annual Investment Allowance
- The £1m allowance rate will be maintained from 1 April 2023
Productivity and growth
The Autumn Statement sets out measures to boost growth and productivity by investing in people, infrastructure, and innovation.
These include additional support to increase labour market participation; increasing public investment in infrastructure across this Parliament; delivering planned skills reforms; and supporting R&D by increasing public funding to £20 billion in 2024-25.
The government will ensure that those sectors which have the most potential for growth – such as digital, green technology and life sciences – will be supported through measures to reduce unnecessary regulation and boost innovation and growth.
The Autumn Statement also announces the final Solvency II reforms, which will unlock tens of billions of pounds of investment across a range of sectors.
Government Chief Scientific Adviser and National Technology Officer, Sir Patrick Vallance, to bring together the best minds to advise how the UK can better regulate emerging technologies, enabling their rapid and safe introduction.
Talent and skills
Since leaving the European Union (EU), the government has refocused the immigration system towards securing the skilled labour businesses need to stay competitive and innovative.
The government will continue to strike the balance between reducing overall net migration in the longer term with ensuring businesses have the skills they need.
Inward migration can ease short-term skills gaps, however it is crucial that over the long term, the UK’s domestic workforce is equipped with the skills necessary to maximise their productivity and drive economic growth.
Despite around 50% of adults being educated at tertiary level, the UK underperforms on basic and technical skills compared to similar developed countries.
That is why the government is taking steps to ensure the education system provides the skills current and future employers need, for example through T-Levels, Higher Technical Qualifications, Skills Bootcamps and Apprenticeships.
The government recognises the importance of supporting upskilling throughout people’s lives, and so is introducing the Lifelong Loan Entitlement from 2025 to provide more flexible finance for adults to study throughout their lives.
To help tackle the barriers to progression faced by individuals on lower earnings, the government will bring forward the nationwide rollout of the In-Work Progression offer, starting with a phased rollout from September 2023. This will mean that over 600,000 Universal Credit claimants that are in work will be required to meet with a dedicated work coach so that they have support to increase their hours or earnings.
More Budget reports
Personal tax and public spending announcements from the Autumn Budget
New Chancellor of the Exchequer Jeremy Hunt today made the official Autumn Statement 2022 on 17 November, outlining plans to stabilise and grow the economy....
If you have any questions about the announcements made today or need advice on how they affect your business get in touch.
We have tax advisors, accountant, R&D specialists and innovation funding experts ready to take your call.
Look out for further analysis from the team in the coming days.