Thursday, 19 March 2020
Budget 2020 brings good news for R&D tax relief
By Shorts’ Radius team
Last week’s Budget confirmed the expected increase in the rate of R&D relief for some companies, and announced some welcome news for all claimants, as well as indicating a general support for wider R&D spending.
R&D tax relief was first introduced back in 2000 and since then it has steadily risen in value. Increasing R&D spending is an aim of the Government, as research shows countries with high levels of R&D spend have more successful economies. The Budget announced plans to increase public investment in R&D to £22bn by 2024/25, which would give the UK direct support for R&D equal to 0.8% of GDP, putting the UK in the top quarter of OECD countries.
In order to achieve this the Budget confirmed a previously trailed 1% increase in the headline rate of the R&D Expenditure Credit (RDEC) to 13% with effect from 1 April 2020. This will take the effective rate of RDEC to 10.53% from 9.72%. RDEC is claimed mostly by the very largest companies and groups (those with employees of more than 500 and certain turnover or asset levels) and whilst RDEC accounts for only 10% of the claims made, it makes up the majority of the R&D relief given. It will also benefit the smaller companies who must claim under the RDEC regime, for example, those in receipt of certain grant funding or those operating on a sub-contract basis.
As expected, there was no increase in the SME rate of R&D relief – this currently offers relief of 24.7% so is considerably more valuable than the RDEC. However, this is viewed as a Notified State Aid under EU law and so is highly unlikely to be amended until the UK is out of any transitional Brexit arrangements – maybe next year?!
There was some good news for the very smallest companies. HMRC had previously announced plans to crack down on abuse of the R&D relief rules by limiting the benefit in line with a PAYE and NI cap. However, as well as limiting the abuse, it was feared this would create genuine issues for the very smallest companies, many of whom do not have a significant amount of salary costs during their initial start-up period. These rules were due to be introduced from 1 April 2020 but have been delayed for a year whilst further work is done to limit the impact on eligible businesses.
Of good news to all claimant companies was a reiteration of the announcement made in the Autumn that there will be a consultation on extending qualifying R&D costs to include expenditure on data and cloud computing. In addition to this, following the Budget there was confirmation from HMRC that legislation will be amended to ensure the changes to the Intermediaries rules (IR35) will not impact the amount of expenditure for relief under the R&D regimes.
Overall, this is a positive budget for those eligible to claim R&D relief.
Shorts’ Radius team help companies Tax Relief for innovation. If you have any questions or would like to discuss whether you are entitled to claim, please contact a member of the team on 0114 2671617 or visit shorts.uk.com/radiusBack