R&D tax credits must be extended, not scaled back, to support a thriving startup ecosystem, according to a new report.
The Startup Coalition, an entrepreneur network that advocates for tech startups, has called for reforms that would simplify the R&D tax credit scheme and support a greater number of startups.
The state-backed R&D tax credit scheme – first introduced in 2000 – is a programme from the government to encourage innovation from UK businesses. The scheme provides tax incentives for companies putting funds towards developing new technologies.
Last year, the government announced it would scale back the scheme, in what it said was partially a way to reduce fraudulent claims. The reforms decreased the level of relief available for small businesses.
The Startup Coalition warned in January that changes to the scheme could cost startups an average of £100,000 per claim.
Further government announcements revealed a plan to merge the RDEC and SME tax credit schemes, which the Startup Coalition said would result in an additional 20% cut in startup support.
In its new report, the group proposed a series of reforms, including the introduction of a £30,000 qualifying claim size threshold, which it argues would reduce the HMRC caseload by a quarter and cut down on fraudulent claims.
The report also supported the idea of merging above and below-the-line tax credit schemes. However, it called for a “truly merged scheme” that would not force small firms on the borderline of eligibility between the two options to oscillate between disparate tax schemes.