Specialist Tax Adviser Aiglon Consulting
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R&D consultation suggests significant changes

R&D reliefs are considered an important part of the government's efforts to boost R&D spending in the UK. HMRC has launched a wide-ranging consultation looking at the effectiveness of the UK’s two R&D relief schemes.

3rd Mar 2021
Specialist Tax Adviser Aiglon Consulting
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There always seems to be something happening with R&D relief. Since its introduction in 2000, there have been changes almost every year. The Chancellor did mention R&D relief in his Budget speech today, but not in respect of any immediate changes. Rather he announced yet another consultation.

This consultation, which will run until 2 June 2021, is a wide ranging review of the R&D reliefs and whether they adequately support the government’s targets for R&D activity. 

This consultation makes reference to the previous consultation that closed on 13 October 2020: The scope of qualifying expenditures for R&D Tax Credits. The official response to this consultation was also published today.

There are some quite significant questions within the detail of the consultation that suggest the government may be thinking about potentially significant changes.

Definition and operational issues

Around definition, the government seems to be looking at the possibility of widening the scope but then balancing that with a suggestion of variable rates for different sectors or activities. That may have a certain logic in terms of targeting the relief more effectively, but it also seems likely to increase complexity.

On operational issues, there are questions on how the claim and compliance process can be improved to everyone’s benefit. 

Of slight concern is the suggestion that a ‘senior person’ at the claimant company might be asked to take responsibility for the content of the claim. Sounds very much like the Senior Accounting Officer scheme and feels like a step too far.

SME relief and the R&D Expenditure Credit 

I am surprised and a little concerned to see a suggestion that the SME relief and the R&D Expenditure Credit (RDEC) for large companies might be merged. If this were to happen, the suggestion is that it could be an RDEC system available to all sizes of company, but then with a different rate of relief for SMEs. 

I can see why larger SMEs might like the idea of an above the line relief (at the right rate, of course), but I’m not convinced it will appeal particularly to smaller companies.

Capital expenditure

Capital expenditure is mentioned in the context of widening the scope of qualifying expenditure. As is acknowledged, we already have a form of capital allowances – R&D Allowances (RDAs) – for capital expenditure on R&D. 

My guess is that if anything happens around capital R&D expenditure, it will involve increasing the rate of RDA (currently a 100% first year allowance).

Brexit and territoriality

One area I am not really surprised to see get a mention is around territoriality. Currently, there is no restriction on where the R&D can be carried out. This stems from EU non-discrimination measures that were relevant when the relief was first introduced. 

Following Brexit, it was really only a matter of time before that was revisited, it seems that the time is now.

This is a wide-ranging consultation that also draws on the responses to the ‘scope of qualifying expenditures for R&D Tax Credits’ consultation. 

Although it is an early stage consultation, there are no real proposals within it, it offers a chance to have a real say on the future of these valuable and important reliefs. If you have an interest in R&D reliefs then my advice is to read it and respond.

Budget 2021

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