BIA briefing on SME R&D tax relief cut for policy makers

At the Autumn Statement, the Chancellor announced an effective halving of the cash credits SMEs can receive from the R&D tax relief scheme, which provides crucial support for innovative businesses, convincing entrepreneurs to start and grow their companies here, helping to attract private investment and accelerate the development of new medicines for patients. It has been announced to tackle fraud but will not do so.

Businesses have made their investment plans based on the SME R&D tax relief providing 33p for every £1 the company itself invests in R&D, the cut proposed in your Autumn Statement means they can now expect 18.6p for each £1 of in-house R&D they perform and as little as 12p for each £1 of R&D they outsource to universities, hospitals or other companies. Life science SMEs are therefore now facing significant shortages in their R&D cash flow projections. This comes on the back of the restriction on claims for activities undertaken overseas which failed to take into account that clinical development is a global activity. Although, with our input, an exemption has now created, the rules are still not finalised and there has been no published guidance to explain their intended application, creating a high degree of uncertainty for companies.

In the face of strong economic headwinds, businesses and investors need certainty and stability. This cut to R&D tax relief, introduced without consultation and effective as soon as April 2023, will mean companies will not receive the investment they have budgeted for, and their R&D programmes will have to be cut back. High-value jobs will be lost and at worst, businesses will move overseas or cease activity altogether. Ultimately the whole UK life sciences ecosystem will suffer from a lack of start-ups and SMEs, leading to fewer clinical trials and large companies operating here.