More than six in ten UK SMEs surveyed by RCK Partners cut R&D investment following reforms to the UK's R&D tax credit system, with a fifth cancelling projects outright and over a third hiring fewer research or technical staff than planned.
- 62% of 254 finance chiefs at R&D-active SMEs said they'd reduced R&D investment because of the reforms.
- One in five had cancelled R&D projects outright; 35% hired fewer R&D or technical staff than planned; 29% delayed projects.
- HMRC's own accounts revised down the estimated cost of SME R&D relief in 2023-24 to £2.34bn from £3.26bn — a fall of around £920m.
- The survey was conducted between 1–7 July 2026.
Why a "tidying-up" reform produced a large behavioural response
The reforms to the R&D tax credit system, introduced in April 2023 to curb abuse of the scheme, were framed as tightening enforcement rather than reducing support. RCK Partners' research suggests the practical effect on small businesses has been larger than that framing implies — when relief is claimed after the work is already done and the rules keep shifting, it stops functioning as a reliable reason to spend in the first place.
"That 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," said Lord Philip Hammond, Chair of the Board of Directors at RCK Partners.
Why grants work differently — and why that matters now
Grants are agreed before the work happens, rather than claimed retrospectively like tax credits. That timing difference is exactly what's missing from the current R&D tax credit experience for many small businesses, which is why grant funding carries more weight now than it did two years ago, before the reforms took effect.
What to check before rebuilding a budget around grants
If you're cutting an innovation budget because R&D tax credit relief no longer feels reliable, the useful next step is checking what grant funding you can actually access before assuming it will fill the gap — eligibility criteria vary widely by scheme and can rule out an otherwise strong project on technicalities like company age or location.
Frequently asked questions
Why are UK businesses cutting R&D spending in 2026?
Research from RCK Partners found 62% of surveyed SMEs reduced R&D investment following reforms to the R&D tax credit system, which they say has made the relief less reliable as a reason to spend.
Are grants a good alternative to R&D tax credits?
They can be, because grants are agreed before the work happens rather than claimed after the fact — but eligibility is typically narrower than headlines suggest, so checking your specific eligibility matters before relying on one.
Who said the R&D tax credit reforms are hurting small businesses?
Lord Philip Hammond, Chair of the Board of Directors at RCK Partners, said the scheme meant to back small businesses is instead driving them to cut research and skilled jobs.