Navigating the R&D landscape: A guide for UK SMEs
For the UK, innovation has become a top priority. Indeed, adapting to the coronavirus economy is the most important objective for most businesses and those that innovate successfully will thrive. However, R&D has become a much more public discussion over the past few weeks. In the recent Budget, the Government put significant emphasis on increasing R&D activity. It recognises that the UK could be more of a global innovation hub.
We have a dynamic economy with a strong start-up culture, but we’re a long way off reaching our full potential with the latest figures indicate we’re spending about 1.71% of GDP on R&D, well off our target of 2.4%. All the right ingredients are there, we just need to create the right environment to nurture the innovation within SMEs. Here Ayming, a leading consultancy that focuses on R&D and innovation shows how UK SME's can navigate the R&D landscape.
In spite of the R&D tax credit scheme being active in various forms for two decades now, SMEs are still under-using the available incentive schemes. The numbers are gradually increasing, with figures for claims in 2017-18 predicted to surpass 2016-17’s, but there is still scope for a much faster change. The companies themselves cannot be entirely blamed for this, as the process has historically been slow and complex: last year, HMRC apologised for processing claims too slowly after it was revealed that it could take seven months for companies to receive the credit. A problem particularly acute for SMEs, which typically face cash flow concerns.
There is light at the end of the tunnel however, with the government gearing up for changes. HMRC’s claim processing time is back on track and there is a clear message that innovation will take centre stage. Public R&D spending is going to be increased to £22 billion, alongside plans to change the bureaucracy, making the claims process both quicker simpler. While coronavirus will likely delay implementation of these changes, there is no doubt that when the crisis is over, R&D incentivising will continue to be a major policy for the government.
With the future looking bright for innovation, SMEs need to take steps now to enable themselves to take full advantage of the new opportunities presented to them.
Step one is talent. Innovation is highly-skilled field which is driven by ideas, and the best ideas come from the best people. Three quarters of firms that we surveyed for our International Innovation Barometer, are expecting a rise in R&D budgets. In order to make the most of this, companies need the best personnel in their R&D teams. Yet, with the top talent is hard to come by, SMEs need to start getting the right people in position now, so when the funding comes in they can hit the ground running. To add to this, the race for talent is likely to become more pronounced in the years to come, as the global innovation race heats up. Making strategic hires now would be a good move.
Businesses also need to take the time to educate themselves. Many SMEs may be new to R&D Tax claims so will not have all their processes in place. Although it may feel like there simply isn’t time to devote to researching how the complex R&D tax credit system works, it is well worth the investment. Companies or staff that are less active due to coronavirus should take the time now to make a retrospective R&D tax claim, which will provide a much-needed cash injection into their business.
Businesses may feel detached from what they perceive to be the technical world of R&D, but most are often due more relief than they realise, which can have real impact by injecting cash back into the business. While the government has a part to play in helping companies navigate this system, SMEs must take it upon themselves to become familiar with the schemes.
Finally, there needs to be a change in attitude when it comes to collaboration. The dominant mode of thought currently sees companies treating R&D like spy-craft, doing it all in-house and keeping the knowledge gained away from competitors. However, this slows down innovation in the long run. It might go against business instinct, but collaboration can be great for SMEs to gain access to new resources, to learn from co-collaborators while reducing costs.
The terms have to be pre-agreed so that collaboration can work smoothly. The current crisis showcases this perfectly, as a number of companies, including Airbus, Rolls-Royce and BAE Systems have collaborated to form Ventilator Challenger UK, which has allowed a new ventilator to be created and produced in a much reduced time-frame.
Collaboration isn’t simple, with there being a range of issues such as conflicts of interest or the intellectual property rights. In order to counter these issues there must be a joint-venture agreement from the outset that not only outlines the resource contribution from each side but who owns the intellectual property rights if the innovation is successful. However, if managed correctly it can yield incredible results. SMEs need to start to open both their minds and their doors; collaboration is the way forward.
The future UK R&D landscape is set to be one of opportunity for SMEs. The UK government is pledging to do their part but this must be matched by the private sector. SMEs need to start devoting resources now to fully take advantage of increasingly friendly environment and drive the development of the UK to become a leading global innovation hub.