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Rishi Sunak, the Chancellor of the Exchequer, has set out his latest spending plan during the Autumn Budget and Spending Review 2021. Innovation and R&D have been a clear focal point as the government fully recognise the importance of innovation in enabling economic growth and creating future jobs.

The government have pledged to invest £20billion in R&D by 2024-25, a 25% increase and “record investment”, growing R&D spending to £22billion by 2026-27. This aligns with the government’s continued goal of increasing R&D investment to 2.4% of GDP by 2027, well above the latest OECD (organisation for Economic Co-operation and Development) average of 0.7%.

Ensuring R&D tax credits are “fit for purpose”

Following the consultation period launched during the Spring Budget 2021, more details have been released supporting the anticipated reform to R&D tax relief rules. As speculated, the scope of qualifying R&D tax relief will now be expanded to cover cloud and computing data.

A welcome improvement, this ensures investment in R&D expenditure can better reflect “modern research methods”. According to Julian David of TechUK, SMEs using this technology can potentially increase annual turnover by £250,000.

Further plans to improve compliance within the scheme are still to be addressed, with more news expected to be published later in the autumn. Joe McGurk, Managing Director at Kene Partners, comments:

“The Chancellor’s Autumn Budget sent a clear message that whilst the government has every intention of honouring its pledge to increase R&D spend, it will also be addressing the alarming misuse of the scheme that has become more apparent in recent years. The prospect of a more clearly defined, fairer, and more closely policed system is one that Kene Partners welcomes.”

R&D on UK soil

In a further bid to cement the UK as “a science and technology superpower”, the government will look to ensure that UK based innovations are rewarded as a priority. This is in an effort to bring the scheme more in line with R&D relief schemes in other countries such as the USA, Canada, Hong Kong, Singapore and Australia; ensuring the UK remains an attractive place to conduct ground-breaking research.

Currently, businesses who are registered in the UK can claim R&D tax credits regardless of where in the world the R&D takes place. The UK R&D tax relief pays out around £48billion, yet UK business investment is currently at £26billion. “We are subsidising billions of pounds of R&D that isn’t even happening here in the United Kingdom and that’s unfair on British taxpayers” notes Sunak.

More detail is expected to be released soon to define the parameters of this new focus, with changes being introduced from April 2023.

In summary, the Autumn Budget and Spending Review 2021 put into practice exciting enhancements to the R&D tax credits scheme that will ensure businesses are accurately rewarded for their R&D investment. The latest raft of improvements secures the longevity and effectiveness of the scheme for years to come, with further details yet to be announced.