There are two main takeaways specifically concerning R&D tax relief in the 2021 Budget: the SME cap is staying and there’s going to be another review of the R&D Tax Credit and RDEC schemes.
In GOV.UK’s ‘Budget 2021: What you need to know’ article, it states: “Capping the amount of SME payable R&D tax credit that a business can receive in any one year at £20,000 (plus three times the company’s total PAYE and NICs liability).”
This has been rumbling through since the 2018 Budget, affects loss making companies and is designed to prevent abuse of the tax relief.
The announcement in this Budget sees it going ahead in the 2021 Finance Bill.
Review of Research and Development Tax Reliefs
You’d be right in thinking that this government has already done one of those. This subsequent review will take into account the findings from the first and is designed “to make sure the UK remains a competitive location for cutting-edge research.”
The fact that previous results are being considered gives hope that perhaps data and cloud computing costs will make their way onto the ‘qualifying costs’ list.
The consultation period started on 3rd March and runs until 2nd June. You can participate by answering the consultation questions and emailing them to RDTaxReliefs@hmtreasury.gov.uk.
Do you consider yourself to be a research-intensive firm? How does your business benefit from the R&D reliefs (e.g. cashflow, reduced tax liability)? If your company is an SME that claims under both the SME tax relief and RDEC, what is your experience of using each scheme and how do they compare?
Is there a case for consolidating the two schemes into one? What do you value about the design of the current schemes that might be lost if they were unified?
What do you think explains the difference in additionality between the twoschemes? How could the schemes be improved to incentivise the R&D your business does or might consider doing? Can you give evidence to support your suggestions?
To what extent do the rates of relief available to you impact your investment decisions and/or your choice of location? Is the balance of relief between the two schemes appropriate? Is there any evidence of significant deadweight where investment decisions would proceed without relief?
Would a departure from the ordinary Corporation Tax self-assessment system be justified? Should more information and assurance be required from companies at the point of claiming? Should a company providing more information upfront be treated differently?
When did you first claim, and what prompted you to do so? Do you use an agent? If so, why? What is your experience of how agents’ fees are structured? How could the expertise and specialist knowledge of agents assisting with R&D claims be improved?
How can the responsibilities of HMRC, agents and the company be better reflected in the claims process?
What other changes might help claims to be dealt with more smoothly, while ensuring better compliance? Is there a way HMRC and advisers can work more effectively to improve the quality of external advice available to companies? If you claim R&D tax reliefs in other countries, how does the claim process differ and what are your views on this?
Is there evidence to suggest areas of activity other than those currently covered by the R&D definition drive positive externalities which should be recognised by the tax system?
Do you think R&D tax reliefs could better incentivise R&D with specific social value, for example developing green technology? Could R&D tax reliefs be used to disincentivise R&D in certain fields?
What is your experience of conducting R&D in different regions across the UK? How do R&D tax reliefs benefit these activities, and how could the offer be improved to better support these activities?
Are there any other areas of qualifying expenditure that should be included within the reliefs? How would this influence your investment decisions?
What proportion of your R&D expenditure is treated as capital for the purposes of corporation tax? What would be the impact on your R&D activities of increased relief for capital expenditure?
Do you currently claim RDAs? If not, why not? What do you like and/or dislike about RDAs?
How much of the activity in respect of which you claim R&D in the UK is undertaken outside of the company, and how much of that is not undertaken in the UK? What are the benefits and drawbacks of subcontracting, whether overseas or domestically? What are your commercial/other reasons for carrying out work overseas rather than in the UK?
How could the government distinguish between work that needs to take place abroad and which benefits the UK, and that which doesn’t?
How can we identify the supporting activities which are most valuable for R&D, while providing a clear boundary to assist companies in claiming and HMRC in administering?”
The instructions ask for evidence from your actual experience to support your answers.
Now really is the time to speak up about nature of the whole R&D tax relief system and include all your ideas for improvement.
The Chancellor has shown broad support for innovation as a whole, announcing the ‘Future Fund: Breakthrough’. This is £375 million investment in “highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20 million of funding.”
This is great for boosting the overall morale of UK innovators and keeps your work in the spotlight, as well as the obvious financial gain. But it’s important for as many people as possible to respond during the consultation process, so that the government can make future decisions based on a broad range of opinions. You’ve got until June 2nd – get thinking and share your knowledge.