Small companies need more Government support to invest in innovation and technology after R&D tax reliefs were scaled back earlier this year, says the Federation of Small Businesses (FSB).

The FSB is calling on the Government to invest more in small firms and direct at least half of all direct funding at them to encourage innovation.

It also stressed that large businesses should be encouraged to include SMEs in their supply chains when working on R&D projects.

According to FSB figures, 69% of small firms introduced a new form of innovation in the last three years. A further 46% of SMEs said that extra tax relief would encourage them to innovate.

Despite this, the Government made cuts to the SME R&D tax relief scheme earlier this year in a bid to crack down on fraudulent claims.

Tina McKenzie, FSB policy chair, said:

"The pandemic has shown how quickly start-ups and small businesses are able to move with new ideas that change the economy, often up against large incumbents. These small firms are keen to keep that legacy alive, but are also facing scarcer Government support.

"We need a set of new policies and decisions to encourage new starters to innovate, and small businesses to take their new ideas and changes to the next level."

The Government recently published draft legislation that proposed the SME and larger R&D expenditure credit schemes be merged into one, which it said presents "significant opportunities for tax simplification".

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