Contact us

Insights & Resources

•

Navigating Uncertainty: Delays in Enhanced Tax Credits for R&D Intensive SMEs in the UK

Filed under

The reduction in generosity of the SME R&D Tax Relief System during the 2022 Autumn Budget Announcement was met with widespread dismay from the life science and technology industries and advisors nationwide. This outcry led to the development and introduction of the R&D intensity ratio, reducing the negative fiscal impact to these key industries. However, a looming concern shadows this proposal and has received very little attention: the delay in passing the legislation into law.

The Impact of Delayed Legislation on SME Claimants and Advisors

The UK government published a technical note that outlines the envisaged tax relief for R&D intensive SMEs. The intention behind this legislation is admirable: to incentivize innovation, foster creativity and provide a much-needed boost to SMEs committed to pushing the boundaries of knowledge through increased financial support.

Yet, within the contours of this well-intentioned initiative, the delay in converting the proposal to law presents a potential stumbling block. The repercussions of such delays are far-reaching and extend across three major fronts: the SME claimants having their enhanced payments delayed, additional work (leading to potential additional costs) for their trusted advisors and a significant increase in double handling of claims by HMRC. With this current position, claimants would need to either submit a tax return at the reduced rate of 18.6% and then, once the R&D intensity ratio and associated increase are brought into law, submit an amended return or delay the submission of the R&D claim completely withholding the relief they may be reliant on.

For SMEs eagerly awaiting the promised tax relief, the delay to the enhanced rate brings further uncertainty. The postponement of the additional financial incentives could significantly impact these enterprises’ R&D investment decisions with delayed tax relief translating to deferred projects, held-back initiatives and delay to potentially ground-breaking advances. The incentives, which are supposed to fuel innovation, might instead stifle it, as businesses hesitate to allocate resources to R&D efforts when the anticipated tax relief hangs in limbo.

On the other side of the spectrum, R&D advisors and experts who play a vital role in guiding SMEs through the intricacies of the tax system are faced with their own set of challenges. These professionals are tasked with navigating the maze of regulations, ensuring compliance and maximizing benefits for their clients. However, a delay in the legislation injects an element of unpredictability into their realm of expertise. The advice they offer may become redundant or incorrect given the potentially significant delays in the proposal becoming legislation. This potentially leads to additional work, as advisors may find themselves having to revise recommendations and agreed strategies once the legislation is finally enacted.

Balancing Innovation and Regulation: Addressing the Delay for Sustainable Benefits

The situation is best described as unpalatable. SMEs yearn for clarity and stability to make informed decisions, while advisors strive to provide accurate guidance within a changing context.

While the proposed additional tax relief for R&D intensive SMEs holds immense promise for driving innovation and economic growth, the delay in passing this legislation into law introduces a dose of uncertainty that casts a shadow over these aspirations. The implications ripple through the entrepreneurial landscape, affecting SMEs and advisors alike. As we navigate the delicate balance between innovation and regulation, addressing this delay becomes pivotal to ensure that the desired benefits are not only achieved but also sustained.

Explore related insights

Explore Insights & Resources