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UK startups label R&D Tax Credits an “unfolding nightmare” ahead of Autumn Statement

In April the UK reduced the tax incentives for early-stage startups to develop their technology locally

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Startups are losing an average of £100,000 a year from the recent changes to R&D Tax Credits which has been described as a “nightmare” by policy group Startup Coalition (formerly Coadec).

Since 1 April the UK reduced the rates payable to loss-making startups, while increasing the amounts claimable to larger companies.

According to some 250 startups surveyed by Startup Coalition, some 84 per cent of founders said they’re considering moving their development offshore as a result of the lost incentives.

“The R&D tax credits scheme isn’t working. The scheme has been cut and it’s being administered badly. Tech startups are paying the price. We need action at the Autumn Statement,” Dom Hallas, executive director of the Startup Coalition said.

“Without changes, there’s a risk that we see this unfolding nightmare killing Britain’s future growth companies - and killing Britain’s future growth prospects along with them.”

Startup Coalition suggests a number of changes, including a minimum of £30,000 for claims in order to target legitimate research and development, along with a lower threshold for ‘enhanced’ R&D Tax Credits which is paid at a higher rate.

“Recent changes to the schemes have only served to increase complexity and ultimately reduce investment in a sector which is a key driver of the economy,” Dom Peasley, CEO of SPRK Capital, an SME lender which specialises in R&D tax credit lending told AltFi.

“Simplification of the R&D tax credit regime, both the scheme designs and policy interpretation and implementation, can only help SMEs if incentive rates remain attractive for them to continue to base their innovation in the UK and SMEs are given time to plan effectively for change combined with a stable innovation tax environment.”

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