The Autumn statement 2017 has delivered key announcements for businesses undertaking Research and Development (R&D) activities.
In the context of a general slowdown of the UK economy with forecasted growth of 1.5% this year, the Chancellor has renewed its commitment to support Autumn Budget 2017 innovative businesses, which is seen as a way of delivering long-term growth in the UK.
The R&D incentive predominantly dedicated at large companies – the Research and Development Credit Expenditure (RDEC) scheme – will see its rate increase from 11% to 12%. This constitutes the first rise in the generosity of the R&D incentives in the UK since the Brexit referendum. This should provide more confidence to large companies to maintain or increase their R&D investment in the UK. Conversely, the R&D Tax Relief scheme dedicated to Small and Medium Enterprises (SME) has been left unchanged. During the last Spring statement, the Chancellor confirmed that the review of the SME scheme demonstrated its competitiveness compared to other countries and that the emphasis should be placed on increasing awareness.
Introduced in 2013, the RDEC scheme was designed to replace the previous large company scheme commenced in 2002. Since its introduction, it has become increasingly popular due not only to its higher generosity, but also to the financial stability it provided to large companies. The most recent HMRC statistics available shows that in 2015/16 the total amount of RDEC received by businesses reached £1,365m for an average claim value of £720k. While some SMEs can also claim under the RDEC scheme under certain circumstances, the vast majority was comprised of large businesses.
The increase in rate with effect from 1 January 2018 combined with the progressive reduction in corporation tax rate will result in a significantly superior net R&D benefit. By 2020, RDEC will be 13% higher than the present level (9.96% net benefit), resulting in an average claim size of £815k for the same amount of eligible expenditure than in 2015/16. Based on the cost estimate of the measure (£170m per year from 2019/20 onward), the total amount of RDEC received by companies will surge to approximately £2 bn – almost 50% higher than the 2015/16 level.
Amongst the other learning points of the Autumn statement is the ambition to establish the UK as a world leader in several key areas with strong growth prospects. To that end, the government has pledged an addition £2.3 bn for Northern Powerhouse Investment Fund, which should, in turn, finance several programmes including artificial intelligence and machine-learning for services sector and innovation to boost productivity in the construction section. Further funding opportunities will also include 5G mobile and next-generation vehicles (roll-out of charging points and driverless cars).
In conclusion, the autumn budget confirmed the government’s ambition of reaching a level of R&D investment equivalent to 2.4% of GDP by 2027 compared to 1.7% in 2015.