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R&D tax credit scheme a ‘costly failure’, says report

27th May 2021

The Government's £7.3 billion research and development (R&D) tax credit scheme is failing to spur investment in innovation and investment, concludes a report from the Centre for Business Research at Cambridge Judge Business School.

It warns that while the 20-year-old "de facto, flagship industrial policy", equates to a quarter of all UK business R&D, the amount of R&D funded by companies' earnings is 10-15% lower than when the relief scheme was introduced.

"At this rate, the level of business R&D needed for the Government to meet its target of 2.4% of GDP being spent on R&D can never be achieved", reads the report.

The SME R&D relief allows companies with fewer than 500 staff to deduct an extra 130% of their qualifying costs from their yearly profit on top of the regular 100% deduction, while the research and development expenditure credit allows larger companies to deduct 13% of qualifying R&D costs.

The report calls for the abolition of the patent box scheme and a refocus of R&D tax credits to give greater impact by reinvesting in new policies more closely aligned with growing and retaining UK-based companies.

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