UK startups could lose £100k under R&D tax changes

R&D tax Image credit: Gorodenkoff via Shutterstock

UK startups could lose an average of £100,000 due to the government’s proposed changes to the R&D tax credit scheme, new research has found.

A study from the Coalition for a Digital Economy (Coadec) found that startups will likely lose between 30% and 40% of savings from the tax credit scheme after the changes, which on average comes to £100,000 per company.

Coadec, a non-profit representing the policy interests of UK tech startups, surveyed more than 250 UK founders over their concerns regarding the changes, which were outlined in the Autumn Statement.

The new rules will see R&D tax relief for small businesses decrease from 130% to 86% in April, while the SME credit rate will decrease from 14.5% to 10% .

The overwhelming majority – 97% – of respondents agreed that the cuts, should they go ahead, will severely impact their company.

Furthermore, 89% agreed that the changes to the system will make the UK a less attractive place for startups and investors.

“This data is clear – startups are terrified of the changes planned for April this year. If the government goes ahead, it will crush some companies and damage many others,” said Dom Hallas, executive director of Coadec.

“The outcome would leave the jobs and innovation engine of the British economy severely damaged for years to come. We hope the government reconsiders.”

Adam McCann, co-founder and CEO of Claimer, said: “The UK R&D scheme has long needed reform, but the cuts at such short notice are just applying a blunt instrument to the problem.

“As this survey indicates, this is another blow to fledging innovative UK startups that are already having to navigate a very challenging macro environment.”

The government recently amended the research and development (R&D) tax credit policy – a financial incentive for UK companies to develop new technologies – which reduced the number of SMEs that were eligible for the scheme.

In December, a number of British tech firms signed an open letter criticising the decision from the government. Signatories included Wayve, Ochre Bio, and Thymia.