The UK currently ranks fourth in the Global Innovation Index with a ranking score of 59.7,
coming in just behind Switzerland, the United States and Sweden

The OECD announced recently that we are facing the worst downturn of any advanced
economy and that GDP will fall by 0.3%. The UK’s innovation outlook however is still
positive, despite the economic outlook looking gloomy.

The UK boasts a world-class intellectual property (IP) regime that protects innovative ideas
and it is home to four of the world’s top ten universities; Oxford, Cambridge, University
College London and Imperial College London. It also has the best superfast broadband
service of any major European economy and our digital infrastructure network is robust.

Recently the UK government committed £1.84bn for important space programmes at this
year’s European Space Agency Council of Ministers meeting and the Business Secretary
also announced £484b in targeted investment to support UK research.

Innovation is key in the R&D sector. The more innovation, the more R&D and business
investment in R&D is essential if Britain is to exit its current situation.

HMRC recently published its new changes for R&D tax credit relief. According to the UK
2022 Innovation Report, the UK still spends less on R&D than the OECD average. At 1.74%,
the UK’s gross domestic expenditure on R&D remained well below the 2019 OECD average
of 2.5%.

However, the government has set an ambitious target to raise investment in R&D to 2.4%
UK GDP by 2027. The government believes that reducing the cost of research, development
and innovation within UK businesses will help them achieve their target.

Businesses claiming under any of the two schemes (SME or RDEC) will be impacted by the
budget adjustments, which will take effect for accounting periods starting on or after 1 April

For expenditure on or after 1 April 2023, the Research and Development Expenditure
Credit (RDEC) rate will increase from 13% to 20%, the SME additional deduction will
decrease from 130% to 86%, and the small and medium (SME) sized company credit rate
will decrease from 14.5% to 10%.

One of the most fundamental changes in the Autumn budget was to refocus the R&D reliefs
provided to activities performed in the UK.

For accounting periods beginning on or after 1 April 2023, subcontracted R&D work and the cost of externally provided workers (EPWs) will be limited to work undertaken in the UK.

There are specific exemptions where work outside the UK is permitted for geographical,
environmental, social, or regulatory/legal requirements. HMRC’s statement published with
the legislation gives examples such as deep ocean research and clinical trials, and, by
inference, could include medical-tech trials in specific patient groups, international telecoms
testing, or technology designed for extreme environments.

This landscape opens itself up to significant innovation, but uncertainty around legislation is
causing problems and sending innovation to other jurisdictions.

We know that SMEs often lack the resources needed to invest in riskier R&D activities and
this makes them more reliant on external sources of knowledge and R&D capabilities.
Competition is fierce and global resources are diminishing so innovation is increasingly
harder without some degree of risk.

However, innovation isn’t just about researching a single product and sending it to market.
It’s about changing how we do things, it’s about changing how we achieve growth. This must
involve embracing uncertainty and risk. We know that public investment is simply not
following private investment and this reinforces existing cultural prejudices and economic
structures that are holding us back.

Mark Joyner at Research and Development Specialists Ltd. heads up a company dedicated
to helping firms navigate the HMRC Tax Incentive.

He wants to spread the word that businesses who are innovating, could be accessing vital funds.

“Whether it’s reinvesting in staff and services, or literally keeping the doors open while riding
out the current economic storm, companies who are innovating should definitely be looking
into whether they qualify for R&D tax credits. We need more awareness about how this
scheme can help those businesses who are thinking outside the box.

“We’re not talking about small sums of money here; our average claim is over £50,000.
That’s money that could be funnelled back into your business and working for you in
whichever way it needs to be. Innovation if often an expensive outlay, receiving R&D tax
credits can look to bring cash into the business, when you need it most.

“Our clients come from multiple industries, some of which have taken a real hit with rising
fuel and energy costs. In these instances, we’re seeing money being used to keep
businesses afloat. Even the sectors that are less affected by cost-of-living issues are
channelling the funds they claim back into staff retention, as we know there is a huge
problem with filling roles and keeping talent right now.”