Changes to the R&D tax reliefs – Autumn Statement 2014 Update

John Moore, December 4th, 2014 John Moore

In the autumn statement on 3 December the Chancellor announced yet more changes to the R&D tax relief schemes designed to further support the UK’s corporate science and technology base.  The headline news is good, with an increase in rates for both the SME scheme and the new R&D Expenditure Credit Scheme (RDEC) for large companies. In addition he announced some administrative changes designed to make it easier for smaller businesses to understand whether they are able to claim. However he also announced the introduction of a restriction on the expenditure on consumables used in the R&D work in certain circumstances.

Increasing Rates

SMEs

The good news is that for qualifying R&D expenditure on or after 1 April 2015 the additional deduction that can be claimed for companies claiming under the SME scheme will increase to 130% from 125%. This means that the total corporation tax deduction for such R&D costs will increase to 230%. Companies that are not paying corporation tax are still able to surrender these “super deductions” for a repayable credit.

Large Companies

There is no increase in the rate of super deduction applied to expenditure being claimed under the old large company scheme which remains at 30%. However, claiming under this scheme is optional, since the introduction of the RDEC scheme which enables qualifying expenditure on or after 1 April 2013 to be claimed as a taxable credit. Again for companies not paying corporation tax there is the ability to claim a payable tax credit. The RDEC credit will increase, for expenditure on or after 1 April 2015, from 10% to 11%. This increases the post-tax benefit, when compared to claiming under the old large company scheme. Under RDEC it will increase to 8.8% for periods when the corporation tax has fallen to 20%, compared to 6% for the large company scheme.

Smaller Businesses

A package of measures designed to enable smaller businesses to claim with more certainty has been announced. This will include an advance assurance scheme for companies making their first claim under the SME scheme, improvements to the guidance on claiming R&D tax relief and a consultation in January 2015 on the issues faced by smaller businesses when claiming R&D tax relief. As a member of the R&D Consultative Committee we will be fully involved in these consultations.

Restriction of expenditure of consumable items

The Government have announced, as part of their drive to keep the R&D reliefs well targeted, that from 1 April 2015 the expenditure on consumable items that are incorporated in products that are sold will be ineligible for the R&D tax reliefs under either the SME or either of the large company schemes.

Our view

We welcome the announcement that additional support is being given to those companies responsible for driving forward the UK’s scientific and technological innovation efforts. The increases in the amount of the reliefs will enable companies to invest further in R&D with a view to being able to increase their competitiveness on the world stage.

We recognise that this change has been made in order to go some way towards funding the costs of increasing the R&D reliefs set out above. However we remain concerned that this will impact adversely on the ability to claim for development of new products and processes. For example claimants developing large “first in class” products for their clients will be penalised under these changes to the currently accepted position that R&D takes place as a necessary part of the development process.

 

Please do not hesitate to contact John Moore on 0207 292 8850 or at john.moore@kinglybrookesllp.co.uk if you would like to discuss the implications of this for your company.

This briefing is prepared by Kingly Brookes LLP, a limited liability partnership. For further information on any of the material contained in or referred to in the briefing, please contact us. This briefing note is intended to keep our readers up to date with the developments in this area, but it is a general guide only and is not intended to be a comprehensive statement of the law and practice in this area. No liability is accepted for the opinions it contains or for any errors or omissions.