Tens of thousands of small firms are set to scale back investment if the government presses ahead with plans to cut research and development tax support.

The move would impact small and medium-sized enterprises, according to new research by the Federation of Small Businesses, with one in five small firms which invested in R&D in the last three years saying axing tax relief will reduce their viability.

It found 50,000 small businesses – 64 per cent – of those who received the tax relief are now less likely to invest in R&D, and a quarter of innovators will now choose less risky projects.


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The UK’s largest business group is calling for a change course on the decision to cut the R&D tax relief scheme for small firms announced in the Autumn Statement.

Martin McTague, FSB national chair, said: “Our findings are a reminder to the Chancellor that the Government still has time to do the right thing – delay or scrap the plan to cut R&D tax credits for small businesses from April.

"Our members tell us the tax credits scheme is more accessible and useful than grants in creating cutting-edge products and services in the UK."


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He said: "It means R&D is led by small firms who can react far quicker to new possibilities than public grant systems administered by quangos many inventors haven’t heard of, meaning time wasted writing bid applications instead of innovating."

The new FSB research shows the impact will be greatest in deterring new entrants, and, since the scheme was introduced, around 30% of small firms claiming R&D tax relief each year are new claimants.

Mr McTague said: "The Chancellor’s decision to rely on estimates that exclude the impact on start-ups and new entrants in making this decision was incredibly disappointing."


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He added: “However, there are very encouraging recent signs of hope that the Chancellor has not forgotten his small business roots, and we certainly think it’s possible he could deliver a great budget for growth.

"Let’s hope he will now be less credulous when presented with bureaucratic certainty that only big firms can deliver R&D."