The Industrial Strategy White Paper is the government’s long term plan for business and industry in the UK. It was written with the consultation of around 2,000 companies and published just before Christmas. It covers many elements of the government’s plans for the economy, we are going to focus on the implications for your R&D investment and tax relief. Innovation is cited as a crucial element to Britain’s future economic success, especially post-Brexit.
Aim to increase proportion of GDP spent on R&D to 3%
This figure is particularly important in terms of international comparison. In 2015, the UK spent only 1.68% of its Gross Domestic Product on R&D (this equates to around £13.5bn). The EU-28 was below the EU average of 2.03% and way below the R&D leaders Sweden at 3.26%. The UK is 11th on the table of statistics produced by the Office of National Statistics (ONS). You can see the full report here.
The government’s new aim is to spend 2.4% of our GDP on R&D by 2027 and eventually reach the EU’s target of 3%.
Any increase in government spending on R&D is good news. Although some feel that it doesn’t go far enough to secure the UK’s position as a world leader in research and development.
The Plant and Works Engineering Magazine reported the opinion of Catax’s CEO, Mark Tighe: “The industry was looking for a rise of 4% in R&D tax relief to 15%. Instead, it’s stuck with a raise of 1%. This might look good on paper as it’s actually a 9% rise in the rate of relief overall, but this isn’t change on a scale that will supercharge the potential in our economy as many would wish.”
How will this white paper affect SMEs?
In the Autumn Budget, the Chancellor said that Britain’s 5.5million SMEs bring “extraordinary vibrancy and resilience” to the economy overall. As only 22,000 of these businesses claimed their R&D tax credits, this white paper has acknowledged that improvements must be made to this uptake. Those SMEs that do claim their R&D tax relief find it to be a crucial source of funding for future innovative projects.
The white paper identifies two key areas that we are very familiar with; lack of awareness of the scheme itself and the complex nature of the regulations.
- Lack of awareness: The government recognise that an awareness campaign is necessary to make sure that more SMEs actually know that the R&D Tax Credit Scheme exists. They plan to do this through organisations that already deliver advice to SMEs.
- Lack of understanding: Just figuring out if your project is eligible for R&D Tax Credits can be a laborious process, never mind calculating the applicable costings. Having the term “technological innovation” in the initial description, leads many businesses to rule themselves out because they are not in the tech or science industries. It needs to be clearer that you do not have to be inventing the next iphone or cooking up experiments in a lab to be eligible.
This is probably the trickiest thing for the government to tackle because it is rectifying an existing misconception, rather than introducing a new idea. As experts, we know that it is about looking at your business through an R&D lens to make sure that you are maximising your R&D Tax Credit claim.
RDEC rate increase
From 1st January 2018, the RDED rate goes up 1% to 12%. This is another step in the right direction, benefitting large companies and the SMEs who use this scheme in particular circumstances. In real terms, it means 9.7p for every R&D £1 you spend.
Alongside the new corporation tax rate which went to 19% in April 2017, its all excellent news for large companies.
RDEC Advance Clearance Service
Currently, first time users of the R&D Tax Credit scheme (SMEs) can get Advance Assurance that their first three claims will be successful. This is great for their R&D investment planning. The government has announced a similar, but different, Advanced Clearance Service (ACS) idea for those using the RDEC scheme (mostly large companies).
We don’t yet know who will be eligible for the ACS or how the system will be administered. Efficient processes are going to underpin engagement with this new scheme. It needs to align with other tax systems, have a clear and precise process and be decided within reasonable time limits.
In the meantime…
Whilst the details and impact of these announcements become visible, if you want to crack on with your R&D tax relief claim, get in touch. We will help you figure out which scheme you should be using, which of your projects are eligible and calculate the applicable costs. It’s great to know that the government confidently voices its support for UK innovation and is taking steps to support future R&D investment. Don’t wait to see how much you could be owed…your future projects may depend on it.