Inability to access R&D reliefs will hamper tech growth, warns RSM UK
New data shows more than a third (38%) of technology businesses have submitted an R&D claim which was initially approved, but later challenged by HMRC, resulting in a repayment, according to leading audit, tax and consulting firm RSM UK.
A further third (34%) submitted an R&D claim which was challenged by HMRC and later declined, while over a quarter (29%) submitted a claim that was challenged but later approved.
While Rachel Reeves announced a record £20.4bn in funding for R&D reliefs, a positive for the tech industry, the Chancellor failed to address the challenges around administration of reliefs which risks hampering growth in the sector.
David Blacher, partner and head of media and technology at RSM UK, said: “The chancellor has emphasised the need to promote growth and innovation in the UK, but may struggle to make this a reality without making R&D reliefs more accessible for businesses. While funding for the R&D scheme has been “protected”, technology businesses are encountering greater levels of scrutiny from HMRC at a time when they are increasingly dependent on the regime to pursue their growth plans.
“Since the merging of the two R&D schemes the increased focus on weeding out erroneous claims has been detrimental to those genuinely in need of funding. SMEs are being hit the hardest as many lack the necessary resources to defend their claims. The increasingly onerous process of claiming R&D reliefs could deter businesses from applying for this valuable tax relief, stifling innovation and hampering Reeves’s growth ambitions.”
A total of 11,368 UK technology companies were incorporated during Q3 2024, down 8% on the previous quarter (12,318) and 13% on Q3 2023 (13,073), according to analysis by RSM UK. The majority of these will be small start-ups with narrow margins but big growth ambitions.
David Blacher added: “The slowdown in new tech incorporations is further evidence that difficulties in accessing the necessary R&D funding for growth and innovation could be putting budding entrepreneurs off setting up a tech company. The lack of tangible commitments specifically aimed at the technology industry in the Budget, coupled with an increase in employers’ NIC, risks damaging confidence among tech businesses even more. As a result, we’re expecting to see another slowdown in incorporations in Q4, making 2024 a subdued year of growth for tech.”
