Earlier this year, the government announced proposed changes to R&D and finally in the Autumn Statement this week, we can now see exactly what that will mean for fast-growth start-ups.
While there’s good news for companies under the Research and Development Expenditure Credit (RDEC) scheme, the SME scheme is the more relevant one for fast-growth businesses.
The changes to the SME scheme are disappointing and will likely slow down the rate of growth with smaller innovative SMEs. R&D has always been used as an additional source of cash to supplement funding rounds. At a time when funding is harder to come by, these changes do not bring good news to start-ups.
Illustrative example of SME rate changes
This example illustrates the impact of the changes; £100,000 of qualifying expenditure for a loss-making start-up has a real cash impact of £14,750 (a 44% reduction).
What is the cash cost for tech/SaaS start-ups?
When do the changes take effect?
The changes will take effect for expenditure on or after 1 April 2023:
- The small and medium-sized enterprises (SME) enhanced deduction will decrease from 130% to 86%.
- The SME credit rate will decrease from 14.5% to 10%.
- RDEC rate will rise from 13% to 20%.
Maximise your claim
The government intends to consult on the design of a single scheme and, ahead of the Budget, will work with industry to understand whether further support is necessary for R&D intensive SMEs.
Given how the above will impact fast-growth companies, it’s even more important to understand other recent changes to cloud computing and data to maximise your claim value.