19 May 2017

Brexit: what does it mean for R&D?

With R&D intrinsically linked to Europe, what will happen after Brexit?

The answer is, no one really knows. As things stand, research and development (R&D) is intrinsically linked to Europe. State aid limits determine what scheme a company falls into (the Research and Development Expenditure Credit scheme (RDEC) for larger companies or the SME scheme for smaller companies) and, therefore, the value of UK tax reliefs available as European grant assistance for companies undertaking R&D.

Following Brexit, the UK will presumably no longer be bound by the European state aid rules and will be free to offer far more generous R&D tax reliefs. It remains to be seen if there will be wholesale changes made reflecting this new-found freedom.

The 2016 Autumn statement promised £4.7 billion to ‘enhance the UK’s position as a world leader in science and innovation’. This was followed up in the Spring budget, with the Government promising to make ‘administrative changes to RDEC to increase the certainty and simplicity around claims’ and to ‘take action to improve awareness of R&D tax credits among SMEs’. The Spring budget, however, did not go far enough. Although changes to simplify the complicated RDEC scheme are welcome, an R&D claim under the scheme is more likely to be pursued by larger businesses, rather than SMEs and tech start-ups, who will be claiming under the more generous SME scheme.

Funding is only one of the issues Brexit brings up. One of the biggest threats it brings to the fore for UK companies is the ability to attract the most talented employees. For a company focusing on R&D, people are its greatest asset. With the unknowns surrounding European nationals’ right to stay, and indeed future immigration levels, this can only affect a UK company’s ability to attract and retain the most talented workforce. Will EU nationals already in employment here start looking elsewhere? What will happen to the talented Europeans currently at University in the UK? With no guaranteed right to stay, some people may also be questioning whether to start their career in the UK.

We’ll provide an update as and when there are any further developments, but if you have any questions in the meantime please do not hesitate to get in touch.

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