Question to the HM Treasury:

To ask the Chancellor of the Exchequer, with reference to the Spring Budget, HC 1183, point 4.51, what analysis was undertaken by his Department when determining the qualifying criteria for the additional tax relief for small and medium sized enterprises; on what evidential basis this is estimated to cost (a) £40 million in 2023-24 and (b) £285 million in 2024-25; and if he will make an assessment of the potential impact of this policy on capital investment for small and medium sized enterprises that fall beneath the 40 per cent threshold.

The Government recognises the value of R&D intensive SMEs to the UK’s wider innovation ecosystem, and at Autumn Statement 2022 committed to working with industry ahead of Budget to understand whether further support is necessary for R&D intensive SMEs.

It is the most R&D intensive loss-making companies that are most affected by the AS22 rate changes, and which the additional tax relief is seeking to target.

The Government has estimated around 20,000 SMEs will benefit from this scheme per year. This estimate and the estimated cost of the measure are based on HMRC administrative data. The costing has been independently certified by the Office for Budget Responsibility and the process to calculate the costing can be found here: https://assets.publishing.service.gov.uk/Government /uploads/system/uploads/attachment_data/file/1142824/Costing_Document_-_Spring_Budget_2023.pdf

Further detail on the economic impact of the scheme will be published in the tax information and impact note ahead of being legislated for in an upcoming Finance Bill, in the usual way.

The Government will keep the scheme design under review to ensure it is effective and delivering value for money.