The impact of R&D tax credits on technology and innovation in 2018

The UK’s tax relief scheme has disbursed over £6.5 billion over this period and has consistently grown year after year.

In 2018, the program is expected to grow further. More business of all sizes from different sectors are expected to file a claim for R&D tax credits. Here’s how this scheme is likely to impact the economy and technical innovation in Britain over the coming year:

Changes in the Autumn Budget

November’s Autumn Budget 2017 included some key changes to the RDEC R&D tax credit scheme. The modifications in the budget are considered generous to large and small businesses who rely on the scheme to offset R&D expenses with tax credits.

The most important change is the increased rate for tax credits under RDEC. This is the second increase to the scheme’s rate since April 2013. The rate of tax credits in 2018 is 12%.

>See also: UK software developers missing out on R&D tax credits

Combined with the new 19% corporation tax rate, which is a significant benefit for large companies. Based on the corporation tax rate and the RDEC tax credit rate, a large firm in Britain can expect to gain £9.70 for every £100 in R&D expenses.

Although small and medium-sized businesses make more claims than larger ones, they have not seen similarly generous improvements to their rates under the SME R&D tax credit scheme.

However, these businesses can still maximize their tax benefits through consulting firms and online platforms such as Tax Cloud. There’s no doubt that the R&D tax credit scheme has helped spur innovation and research across the economy.

With a more generous program in 2018, these tax credits should fuel business confidence and economic growth for the foreseeable future.

Business confidence and economic growth

Despite a challenging 2017, most businesses remain optimistic for 2018. Nearly 65% of British businesses expect high growth, turnover, and productivity in the coming year. 78% of  these businesses operate in the manufacturing, engineering, IT and life sciences sectors.

In other words, British businesses are confident and research-intensive industries are more optimistic this year, although a lot of these businesses claim cash flow is one of their biggest
challenges, only a third of them claim tax relief under the R&D tax credit scheme. Although the number of claims and the value of incentives has been steadily rising for more than seventeen years, many British businesses are still missing out on this opportunity to invest in research and innovation while improving their cash flows.

>See also: Tech firms more confident than other businesses of growth in 2017

2018 could see a rise in small and medium sized businesses from different industries claiming these credits for the first time. This rise has been boosted by industry groups and think tanks.

The All-Party Parliamentary Design and Innovation Group, along with the Design Business Association (DBA), found that only one in every ten design firms are claiming tax credits under this scheme.

These groups are now calling on the government to simplify the process and are encouraging design firms to make claims against the costs of their innovative design techniques and supply chain modifications.

Other industries could follow suit as awareness about this program grows. Despite the complications of Brexit and the upheaval in British politics, it is safe to say the program will continue to grow in 2018 and inspire more innovation in the economy.

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Nick Ismail

Nick Ismail is a former editor for Information Age (from 2018 to 2022) before moving on to become Global Head of Brand Journalism at HCLTech. He has a particular interest in smart technologies, AI and...

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