Budget 2016 – R&D Tax Relief News

John Moore, March 16th, 2016 John Moore

The Budget announcement today did not contain any new changes to the headline rates of R&D tax relief or the way the schemes operate for the vast majority of companies claiming R&D tax relief. However there are some announcements that have been made that are worth being aware of for those companies who are making, or will make claims in the future.

Vaccine research relief (VRR)

Finance Bill 2016 will introduce a measure to provide for the expiry of VRR with effect from 31 March 2017.

Vaccine research relief (VRR) was introduced in 2003 as an additional research and development tax relief for companies undertaking research in the fields of vaccines and treatments for tuberculosis, malaria and HIV/AIDS. In 2011, VRR was first reduced, and then withdrawn for small and medium sized enterprises.

Fewer than ten companies claim VRR each year, which is available to large companies only. HMRC have said that the low level of take-up of the relief suggests it does not have a significant impact on a company’s research decisions. The government believes that direct spending programmes like the recently announced Ross Fund offer a more effective and flexible approach to the production of medicines and vaccines.

Where qualifying chapter VRR expenditure is incurred before 1 April 2017, companies can continue to claim VRR in relation to this expenditure, in returns that are submitted after 1 April 2017, in line with normal claim time limits.

HMRC have said that their published guidance will be revised in due course.

State aid cap

The SME R&D scheme is a notified state aid and the UK legislation ensures, in line with EC policy, that no one company can receive aid in excess of €7.5million for any one project. When calculating whether they have exceeded this €7.5million cap, companies can ignore any aid which represents a notional amount which could be claimed under the Large Company scheme (that scheme is not a state aid).

This measure ensures that, despite the fact that the Large Company scheme is being replaced by the RDEC, SMEs continue to get the same benefit as they currently do.

State aid transparency

Finance Bill 2016 introduces legislation permitting HMRC to collect information from businesses that receive state aid through the tax system, and to share and publish that information. This will require the company to provide the information as a condition of entitlement for the tax relief. It is proposed this will allow for improved monitoring of such aids granted by HMRC. The new rules take effect for State aid provided from 1 July 2016.

The SME R&D tax relief, and Vaccine Research Relief, are both state aids falling within the reporting requirements, and details of those companies receiving tax credits and enhanced deductions above 500,000 euros will be published in due course. The R&D Expenditure Credit (RDEC) tax relief is not affected because it is not a notified state aid.

HMRC have said that they will be providing further guidance and contacting affected companies in due course.

Our view

For the majority of companies claiming under the various R&D tax relief schemes these announcements will not impact on their ability to claim and will simply appear to add some disclosure requirements where state aids are received. Whilst the ability for a very few large companies to claim the VRR is being removed this is in line with the government’s intention to ensure that the tax reliefs stimulate the performance of new R&D. The change to the state aid cap is welcome in that it will prevent an unintended reduction in the R&D relief available to some SMEs on the expiry of the Large Company relief on its replacement by Research and Development Expenditure Credit.


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.