More SMEs claiming R&D tax credit: one step in the right direction for rebalancing

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As I discussed on Tuesday, in EEF's Route to Growth report we argued that one sign that the UK economy was travelling in the right direction for export and investment led growth would be seeing more companies bringing more products and services to market.

R&D and innovation are key enablers of this: so we want to see higher levels of R&D expenditure in the UK. In addition, as the majority of R&D expenditure in the UK is currently undertaken by large firms, we want to see more small firms engaged in innovation in the future.

As such, we laid out two key measures:

  • Business Expenditure on R&D should return to pre-recession levels (as I said on Tuesday, the good news is that this has already been achieved)
  • Uptake of the SME R&D tax credit should increase 60% between 2008/09 and 2014/15.

Today HMRC has released data on the second of these targets. And this is also good news:

The number of SMEs claiming R&D tax credit rose by 49% between 2008/09 and 2011/12.

More SMEs claiming the R&D tax credit could be a step in the right direction for rebalancing as the SME R&D tax credit can aid cashflow and encourage a virtuous circle of investment in R&D and innovatoin.

The strong growth also shows the powerful effect that policy can have. There have been significant increases to the SME R&D tax credit over the last few years, which will have encouraged companies to use the credit. In addition, compared with some other forms of innovation support, the credit has been around for some time, so is well-known by the kind of companies that are likely to claim it.

But – as I pointed out on Tuesday – it's not job done yet. UK Business Expenditure on R&D lags behind many of our international competitors. This coming Monday, we will be releasing our Innovation Monitor 2013, which will include some of our policy recommendations to build on the progress we've seen so far on R&D and innovation.


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