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50% of UK STEM businesses expect to move R&D activity abroad due to tax relief rules, reveals research from ForrestBrown

Research from ForrestBrown, the leading R&D tax relief consultancy, reveals that half (50%) of UK science and technology businesses expect to move some of their R&D activity abroad as a result of upcoming changes to R&D tax incentives.

Currently, UK companies pursuing scientific and technological innovation can benefit from R&D tax relief while supervising overseas resources. This helps to make the UK a more attractive location from which to lead complex global R&D programmes, enabling companies conducting cutting-edge development to utilise specialist technical expertise that may be scarce in the UK.

Legislation due to come into force from 1 April seeks to refocus R&D tax incentives towards innovation carried out in the UK by excluding relief for subcontracted work and the cost of externally provided workers (EPWs) when R&D is carried out overseas.

This change risks derailing the UK’s attempts to establish itself as a science and technology superpower. On average, science and technology businesses surveyed by ForrestBrown invest nearly £1.1m in R&D activity per year. The Office for National Statistics (ONS) estimate that expenditure on R&D performed by UK businesses in 2021 was £46.9bn. ForrestBrown’s research implies this figure could be severely diminished as a result of the impending legislation.

ForrestBrown’s research also shows that the main motivation for businesses relocating R&D activity abroad is a shortage of the specialist skills they need in the UK. This is particularly true for the science and technology sector, where 42% stated that the availability of talent was the primary factor when considering where to locate their R&D activity. It is this talent squeeze which often necessitates looking overseas for the specialist skills required.

Against this backdrop the proposed changes to the relief, while intended to attract more R&D investment to the UK, could instead encourage businesses to look for more favourable policy environments from which to run global R&D activity, with greater flexibility to access the talent they need.

Forrest Brown Director, David Byrne, comments:
“R&D tax incentives are a key factor in decision-making for multi-national companies when determining where the locus for projects should be. Putting the UK at the centre of global collaboration has clear spillover benefits for the knowledge economy – even when some activities are carried out overseas because of a scarcity of specialist skills in the short-term. Our research indicates that restricting R&D tax relief in this way could ultimately harm the UK’s ambition to become a science and technology superpower.”