BIA submission to the Finance Bill Lords Sub-Committee
The BIA has responded to the inquiry of the House of Lords Finance Bill Sub-Committee on the reforms outlined in the draft Finance Bill. These reforms aim to simplify the tax system and provide further support to Research and Development (R&D)intensive SMEs. In particular, this includes the continuation of a higher rate of payable tax credit for loss-making R&D intensive SMEs, and the merging of the two existing R&D schemes. Further analysis can be found in our blog.
Whilst welcoming efforts to simplify and target the R&D tax relief - including the enhanced rate of relief for R&D-intensive SMEs announced at Spring Budget 2023 - our response notes the crucial support that R&D tax relief provides, enabling the UKs truly world-leading life sciences industry, and raises strong concerns about the detail and implementation of the reforms, including:
- The merger of the schemes will provide simplification for non-R&D intensive SMEs and large companies, but the new regime as proposed will give rise to additional complexity for R&D-intensive SMEs, which will be subject to new rules and requirements. However, the benefit of the enhanced rate outweighs the impact of this complication and we are grateful for the additional support being provided to these SMEs.
- R&D intensive SMEs are being asked to adapt to multiple changes in a short timeframe with only draft legislation and guidance which is not final, or no public guidance at all. This is impacting investment decisions and hiring plans and creating unnecessary costs for SMEs.
- It is important to note that the enhanced rate of 27% is still not as generous as the 33% rate under the previous SME scheme, making the regime less impactful at leveraging private R&D investment and the UK less internationally competitive than comparable countries, including France (30%) and Australia (up to 45%).