UK SMEs active in research and development are cutting investment, delaying projects, and reducing technical hiring after reforms to the R&D tax relief regime, according to new research commissioned by RCK Partners.
The research, conducted by Censuswide among 254 chief financial officers at R&D-active UK SMEs, found that 62% had reduced investment in research and development as a direct result of recent reforms. The survey was carried out between 1 and 7 July 2026 among companies that had claimed or considered claiming R&D tax relief in the previous five years.
More than a third of respondents, at 35%, said they had hired fewer R&D or technical staff than planned. Almost three in ten, at 29%, had delayed projects, while one in five had cancelled R&D projects outright.
The findings add weight to concern that reforms introduced to reduce error and fraud may also be affecting legitimate claimants. The changes phased in from 2023 included the merger of the previous SME and large company schemes into a single regime, tighter advance notification requirements for some applicants, restrictions on relief for overseas R&D, and increased compliance checks.
Lord Philip Hammond, chair of the board of directors at RCK Partners, said: “Innovative small businesses are the backbone of the British economy and the source of the growth we so badly need. A scheme meant to back them is instead driving them to cut research and skilled jobs should worry anyone who cares about Britain’s future prosperity.”
The research points to operational as well as strategic effects. Three in ten finance chiefs said delays or uncertainty in receiving R&D tax relief payments had led them to make redundancies or leave roles unfilled. The same proportion said they had taken out loans to bridge the gap, while 26% said business leaders had used personal funds.
Processing uncertainty appears central. Seventy-two percent of finance chiefs said the time HMRC takes to process and pay claims makes the relief too unreliable to factor into financial planning. Among companies that had faced an HMRC enquiry into an R&D relief claim, the average wait for a substantive update was almost four months.
Rufus Meakin, senior adviser and brand ambassador to RCK Partners, said: “For more than twenty years, Britain deliberately gave its small and medium sized businesses more support, because successive governments recognised they face the greatest barriers to innovation and benefit most from help. In 2023, that principle was substantially weakened, with support for many SMEs more than halved. This research suggests those unintended consequences are now becoming clear.
“As policymakers continue to evaluate the effectiveness of the regime, they should consider whether the level of support given to SMEs is conducive to their ability to grow and innovate.”
HMRC guidance says the merged R&D expenditure credit scheme and enhanced R&D intensive support apply for accounting periods beginning on or after 1 April 2024. The guidance states that the objective of the reliefs is to support and incentivise R&D, helping overcome market failure that causes underinvestment.
The tension is whether the compliance regime is deterring the same activity the relief is intended to support. R&D tax relief has always required controls because the scheme has been exposed to error, aggressive advisory practices, and weak claims. For smaller companies, however, unpredictability can change board decisions quickly. A delayed repayment can affect cash flow assumptions, recruitment decisions, and the willingness to begin multi-year technical projects.
The issue also sits inside the government’s wider growth agenda. Ministers want more companies to invest in innovation, commercialise technology, and scale in the UK. At the same time, the public finances require stronger control over reliefs, subsidies, and tax expenditure. The R&D regime is caught between those objectives.
Sectors where innovation costs are front-loaded and revenue follows later face particular pressure. Software, engineering, life sciences, clean technology, advanced manufacturing, agriculture technology, defence technology, and AI companies all depend on predictable financing for projects that may take years to generate returns. If relief becomes less dependable, finance chiefs may demand shorter payback periods, reduce speculative work, or move activity to jurisdictions where grant or tax support is clearer.
The survey does not show that reform should be reversed in full. It does show that complexity and uncertainty now have measurable commercial effects. A regime designed to prevent abuse must still be legible enough for genuine innovators to plan around it, especially where policy elsewhere is trying to attract capital into the same high-growth companies.
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