Question to the HM Treasury:

To ask the Chancellor of the Exchequer, pursuant to the Answer of 19 December 2022 to Question 110697 on Research: Business, for what reason the projected additional incentivised research and development for the SME scheme spans from £0.60 to £1.28.

HM Revenue and Customs (HMRC) has an ongoing evaluation programme that includes recent evaluations of the impact of the two R&D tax reliefs on business spending, which is known as additionality.

The ‘additionality ratio’ of each scheme is a measure of additional R&D expenditure generated for each additional pound of tax foregone.

The latest evaluation of the Research and Development Expenditure Credit (RDEC) scheme estimated an additionality ratio of between 2.4 and 2.7 for regular claimants, indicating that every £1 foregone in tax revenue stimulates between £2.40 and £2.70 of R&D expenditure.

The latest evaluation of the Small and Medium Enterprise (SME) estimated an additionality ratio of the UK SME scheme of 0.75 and 1.28 for ‘deduction claims’, and 0.60 and 1.00 for ‘credit claims’, indicating that every £1 foregone in tax revenue stimulates between £0.6 and £1.28 of R&D expenditure.

Further detail on the additionality ratios for both schemes and the methodology used to calculate these ratios can be found in the following evaluation reports:

RDEC:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/934270/Evaluation_report_-_R_D_RDEC.pdf

SME scheme:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/935191/HMRC_Research_Report_598_R-and-D_tax_relief_for_SMEs.pdf

The Government’s review of the R&D tax reliefs is ongoing and any further measures will be announced in due course.