Autumn Budget 2021: Chancellor promises R&D Tax Reform to ensure innovation is ‘Made in Britain’

October 28, 2021

Written by Tom Nicolson 

The Chancellor of the Exchequer, Rishi Sunak, promised wide-ranging changes of R&D Tax Credits in the UK as he suggested some parts the current system were “not working well” and were “unfair on taxpayers”. 

Mr Sunak took immediate advantage of new-found legislative freedoms post-Brexit by making the scheme more nationalist in focus. During the Autumn Budget Spending Review, Sunak suggested too much tax relief is spent outside of the UK, saying “companies claimed R&D Tax Relief of £48bn yet UK business investment was around half of that at just £26bn” saying this was “unfair to UK taxpayers.” 


He added: “We’re subsidising billions of pounds of R&D that isn’t even happening here in the United Kingdom and that is unfair on British taxpayers”. Under the current guidance, SMEs can outsource their innovation costs offshore for a cheaper rate compared to the UK and claim up to 21.45% (33.35% of 65% of QE) of their expenses under the scheme.  


The new policy, which would not have been possible under EU law, will put us on par with countries with their own respective R&D Tax Schemes including Australia, Canada, Hong Kong, Singapore and the USA that have focused their tax reliefs solely on qualifying expenditure on domestic activity and jobs within their territories.  


The long mooted inclusion of Cloud Computing and Data costs as eligible expenditure was formally announced. Something that had been expected due to it being extensively discussed in consultation committee meetings as well as the governments earlier consultation of the Industry at large. 


The announcement, follows the NI & PAYE cap which was brought into force in April 2021, is a further restraint on small software companies that have built their products offshore with a view to paying high developer costs here in the UK. Clear moves are being made to encourage those in the software industry to bring R&D in house. 


The savings created by the new measures have meant that the government will set out a new portfolio of different funds to inspire innovation to happen on these shores which will include:  


  • The Future Fund – the fund for pre-revenue or early-stage tech start-ups founded during the height of the pandemic.  
  • Help to Grow – focused on small business leaders to develop in-house skills to help their businesses achieve high growth. 
  • The Net Zero Strategy – a swathe of incentives and measures to drive zero-net carbon by the 2050 target.  
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