Reforms due to come into force in April to refocus R&D tax incentives schemes will see the UK lose its top position as the most generous country for R&D tax relief to France, a new report by global professional services firm Alvarez & Marsal Tax (A&M) has found.

Among OECD countries, the UK currently has the most generous set of R&D tax incentives as a proportion of GDP. However, while the upcoming changes will increase the relief available to large companies, it will decrease the amount of relief available to small companies.

The overall effect will be to reduce total annual government expenditure on the regime by around £1bn ($1.2bn), enough for the France to clinch the title for having the most generous R&D tax relief scheme as a percentage of GDP.

Under the current system, UK rates of relief for SMEs are in the top third of national OECD relief schemes for generosity, measured as a percentage of GDP. Though for large companies, the UK is in the bottom third of countries that offer an incentive. Following the changes, the UK’s SME scheme will drop to middle of the pack, and improve relief for large companies, bringing them slightly above the median.

A&M managing director, Marvin Rust, said: “The chancellor’s budget should be firmly focused on making the UK the best destination in the world to do business. The proposed changes to R&D credits seem incongruent with that plan and will likely be detrimental to innovative start-ups.

“The R&D tax relief is often an incredibly important early source of funding for start-ups in areas such as the life sciences and technology sectors. While the increase in R&D tax relief for large businesses is welcome, the chancellor should reconsider his plans for SMEs as it threatens the viability of innovative businesses, just as the UK launches its bid to become a science and technology superpower.”