On Friday (13 January), the Government launched a consultation with the overall aim of simplifying the UK’s R&D tax relief claims process, to drive innovation and grow the economy.
The 8-week consultation will run until 13 March 2023 and sets out proposals on how a single scheme could be designed and implemented.
As the consultation ends just two days before the Budget on 15 March 2023, it is very unlikely we will see any major announcements then – these are more likely to be in the Autumn Statement.
What is being considered?
It is proposed that a single scheme would replace the two R&D tax relief schemes currently in place – the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief.
The Treasury says that a scheme modelled on the current RDEC for SMEs would give decision makers in smaller companies clearer information, which would help them set budgets for R&D. In contrast, for those claiming SME tax relief in the current setup, the exact amount of money their firm will receive can only be known with certainty at the end of the accounting period.
Potential changes
The new scheme could potentially adopt rules from the current SME scheme, so that large companies could be able to claim for qualifying payments to any subcontractor.
If the RDEC rules were aligned for SMEs and large companies alike, so that subcontracted or subsidised work is eligible for relief, this could simplify one of the more complex areas of the regime.
This could be achieved by adopting the rules from the current RDEC scheme. This would mean that claimants could not claim for payments they make to subcontractors, but the subcontractors themselves could claim and benefit from the relief. This could also result in claimants whose R&D is subsidised (for example by grant funding), being able to claim more easily.
The Treasury is also considering whether to introduce varying levels of tax relief based on industry sectors. However, it has expressed concerns that differentiated tax relief for specific industries would increase complexity and compliance costs, thus widening the scope for abuse.
It is also considering whether a minimum threshold for expenditure on R&D should be introduced to limit claims, and potentially to deter abuse of the system.
Part of the ongoing R&D tax relief review
This is part of the government’s ongoing R&D tax reliefs review, and follows changes announced at Autumn Statement 2022 where the generosities of the two R&D tax schemes were broadly aligned, with the Chancellor pledging to work with the industry to understand how to provide further support for R&D intensive SMEs.
The UK is unusual in having two schemes and moving to a single measure would simplify the R&D tax relief system in line with the Government’s overall plans for tax simplification.
The Government has invited views from individuals, companies, representative and professional bodies, and especially invites comments from R&D intensive businesses.
The closing date for comment is 2pm on 13 March 2023 and if implemented, the new scheme is expected to be in place from 1 April 2024.
Get in touch
Cowgills are experts in R&D tax claims, with over 15 years’ experience in reviewing, managing and submitting successful claims. Please do get in touch should you have any queries.
Disclaimer
The information was correct at time of publishing but may now be out of date.
