Small business spent £24bn on R&D last year

Small businesses spent 4% more on research and development in 2021 than they did in 2020 – calling into question Chancellor’s decision to slash R&D investment incentives

Small businesses spent £24.3bn on research and development (R&D) in 2021 – 4 per cent more than they spent on R&D in 2020, according to latest Office for National Statistics figures.

Businesses with up to 249 employees spent nearly £1bn more on research and development last year than the £23.3bn they spent in 2020 and £4.3bn more than they spent in 2018 – calling into question the Government’s decision in the Autumn Statement to cut the R&D tax credit for SMEs in favour of concentrating it in the hands of larger businesses.

By comparison, larger businesses only spent £22.6bn on research and development last year.

>See also: Autumn Statement what it means for small business

The Federation of Small Businesses has accused Chancellor Jeremy Hunt of “economic vandalism” over his decision to cut investment incentives for small and medium-sized businesses.

The FSB told The Times that the Chancellor had made an “unprovoked attack” on SMEs by reforming R&D tax credits last week.

The scheme has been tilted towards larger companies after the Treasury decided that research and development tax credits for small businesses were too often used for fraudulent and spurious claims.

>See also: Sunak eyes reining in small business R&D tax credits

The worth of the R&D tax credit has been nearly halved following the Autumn Statement. Mr Hunt cut the deduction rate for the SME scheme to 86 per cent and the credit rate to 10 per cent.

Tina McKenzie, policy and advocacy chairwoman at the FSB, told the newspaper: ““This should have been a moment of triumph for the small business community and the UK economy, but the Chancellor has turned triumph to disaster, with the self-inflicted R&D credit crunch set to cut a swathe through start-ups, [university] spin-out and advanced engineering companies. Driving small R&D firms out of business is economic vandalism.”

Overall expenditure on research and development performed by UK businesses (in current prices) was £46.9bn in 2021, an increase of £2.9bn since 2020 and £5.9bn since 2018.

Further reading

How businesses can maximise their R&D tax credit benefits

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...

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