Chancellor Philip Hammond announced that R&D tax relief was rising by 1%, from 11% to 12%, as of 1st January 2018. His projection for the next six years puts the cost of this rise at £755m and estimates that 4,000 companies will claim in that time. There is no massive administrative upheaval to pay for, just a change to the figures involved. This is all part of “the central mission of the Treasury” to increase UK productivity, financed by an £8bn ‘national productivity investment fund’.
What’s the catch?
The disappointing catch is that this rise only applies to the large companies RDEC tax relief scheme and doesn’t include the SME scheme.
As reported in AccoutingWeb, ForrestBrown’s director Jenny Tragner summarises: “It would be even more positive if this increase could be extended to benefit smaller businesses and SMEs as well, RDEC is aimed at larger businesses, and the government had already increased the generosity of this incentive with a reduction in corporation tax from 20% to 19% this year. It has now gone even further and given big business an extra bonus by increasing the RDEC rate too.”
Head of R&D at Smith & Williamson, Matt Watts, (in Real Business) also questioned the resulting message to different types of businesses, saying “What about our SMEs and scale-ups? The chancellor has increased the Research and Development tax credit [RDEC] credit by one per cent but has left the SME rate the same. Whilst the existing scheme for SMEs is still more valuable, limiting the increase to R&D tax credits for the large company scheme sends a mixed message to British businesses? The R&D tax credits is a popular relief which is promoting investment and creating jobs. Why should only big business benefit when it’s our smaller businesses we need to be supporting?”
Head of the R&D Group at MHA MacIntyre Hudson, Tom Byng, said, “This is the first time since RDEC’s introduction that the two have not been increased together,” he noted. Given that SME relief is currently capped by EU state aid rules and was at its maximum level compared to the RDEC, it leaves space for the SME scheme to grow in the future. While not a huge increase it takes away any uncertainty and highlights the government’s commitment to R&D tax relief.”
Given their value to companies who already claim, this last thought is extremely positive. Many businesses have been able to grow further and quicker thanks to their successful R&D tax credit claims. So it is reassuring to see this as the government’s commitment to sustaining its support of R&D tax credits.
Catax’s CEO, Mark Tighe, picked up on one of our bugbears about the Chancellor’s accompanying rhetoric: “While the chancellor has chosen the future, one element of his thinking about R&D remains stuck in the past: he once again made the same mistake of overly associating the research and development revolution with the most cutting-edge technologies, such as driverless cars, AI and 5G.Yes, these sectors symbolise the vanguard of innovation but we should not forget that many everyday businesses are also performing R&D day in, day out.
The government needs to drive greater awareness of what constitutes R&D in order that the many companies performing it unwittingly can take advantage of the lucrative tax reliefs available. The lack of knowledge surrounding what constitutes R&D is a fundamental problem as the money companies get back through R&D tax credits is generally reinvested in further R&D, which is a virtuous circle for any economy seeking to increase its productivity and compete on the international stage.”
Whatever field you are in, whatever sized company you own, if you are involved in qualifying R&D activities it’s in your interest to claim the substantial tax relief available. If you are not sure, that’s even more reason to get in touch. Our total focus is on R&D tax credits and relief, with expertise that encompasses your wider financial picture. Our R&D professionals provide an end-to-end service that starts with identifying your qualifying R&D activities and ends with a substantial amount to reinvest in your business’s future. Give us a call on 0330 0539 112 or drop us an email today.