On 3 March 2021, the Chancellor outlined several plans to invest in innovative UK businesses and the research and development (R&D) sector, including by reviewing the existing R&D tax credit system.
With a target to raise total investment in R&D to 2.4 per cent of UK GDP by 2027, the Government believes that the country’s existing R&D tax reliefs has an important role to play.
That is why Rishi Sunak confirmed that the Government would undertake a full and detailed review of existing R&D tax reliefs, via consultation with key stakeholders, to create a more effective tax credit scheme.
Although this consultation process is in the early stages, the Government has set out to find out more about the nature of private-sector R&D investment in the UK and how the tax relief system can better support innovative work.
This new wide-ranging consultation process will look at the two key elements of the current tax credit system, the SME scheme and the Research and Development Expenditure Credit (RDEC). In particular, the review hopes to consider:
- How the two R&D relief schemes support R&D in the UK;
- How they operate; and
- How effectively they interact with modern R&D practices.
Importantly, the consultation will also look at the definition of R&D and the scope of what should and should not qualify for relief, to ensure that the system is still fit for purpose.
In recent years there have been concerns that the system may be open to abuse, with the Government already taking steps to eliminate fraudulent claims through the upcoming R&D PAYE cap, which comes into force at the start of April.
During the consultation, stakeholders will also be asked to share their views on the two current systems and whether they should be merged in some way to make the relief simpler to claim.
The consultation document states: “Having two schemes also means having two, overlapping sets of rules instead of a single coherent system.
“The 2017 Budget promised to simplify the R&D claim process, and stakeholders have suggested that ‘RDEC for all’, potentially with a higher rate for SMEs, could be one such simplification.”
HM Revenue & Customs, which operates the scheme and manages claims, also wants to know whether the claims process might be improved, both to give a better experience for claimant companies and to improve controls.
With many tech firms reliant on the funding and tax relief afforded to them under the current R&D tax system it is important that they have their say on these changes and keep updated on future proposals.
As part of our role as a key adviser to the sector and its many start-ups and scale-ups, we will continue to monitor this review and bring you updates, so that you can take full advantage of any changes or prepare for new challenges.
We have helped clients in the tech sector to claim millions of pounds worth of R&D tax credits, to find out how we can help, please speak to our specialist tech team.