HMRC is consulting on potential options to simplify the UK’s R&D tax relief system. Closing on 13 March 2023, the consultation sets out proposals for how a single R&D scheme based on the research and development expenditure credit (RDEC) could be designed and implemented. This would replace the existing RDEC and the SME reliefs, potentially with effect from 1 April 2024, according to the Treasury. Once a single scheme is decided upon, a final rate will be decided within the cost envelope of the R&D reliefs and announced at a future fiscal event.
The consultation seeks view on:
whether the new scheme should be an above the line RDEC-like credit;
proposals for any alternative schemes;
whether more generous support should be provided for more R&D intensive companies;
whether there should be a threshold for claiming for expenditure;
the specific treatment of subcontracting; and
possible simplification of the PAYE/NICs cap.
Victoria Atkins MP, financial secretary to the Treasury, said: ‘Getting R&D tax relief right and fit for the future sits at the heart of making sure the UK remains a competitive location for cutting edge research – helping new firms grow’.
Commenting on the news, Colin Hailey, managing partner of Confluence Tax, said: ‘Having a merged scheme is to be welcomed if it acknowledges one important difference: enhanced relief for knowledge intensive companies, such as in the life sciences, that keep their intellectual property and therefore their taxable profits in the UK. This is surely a logical approach for both taxpayers and governments committed to science and innovation.
‘However, the consultation does not address anti-fraud and anti-spurious claim measures,’ Hailey said. ‘The banning of contingent fee claims would be welcome as part of any modernisation of UK R&D tax relief.’
Tax expert Penny Simmons of Pinsent Masons thought it ‘disappointing that the government seems intent on pressing ahead with proposals to merge the two schemes, despite acknowledging that changes introduced in the UK Autumn Statement to scale back the SME R&D tax reliefs are already creating “challenges for some R&D intensive SMEs and those in the life sciences sector”.’
‘Given that the consultation specifically asks for input about whether additional support should be provided for different types of R&D and R&D intensive companies, it is hoped that the Treasury remains willing to engage constructively on this and that it will be possible to safeguard for the interests of R&D intensive SMEs and the future of UK-based R&D investment in start-up ventures,’ she said.
‘The timeline for implementation is very ambitious – allowing just over 12 months to design, legislate and implement the new scheme,’ Simmons added. ‘This may create challenges for R&D intensive businesses as they will have very little time to prepare and adjust their financial modelling to adapt to the new scheme.’
HMRC is consulting on potential options to simplify the UK’s R&D tax relief system. Closing on 13 March 2023, the consultation sets out proposals for how a single R&D scheme based on the research and development expenditure credit (RDEC) could be designed and implemented. This would replace the existing RDEC and the SME reliefs, potentially with effect from 1 April 2024, according to the Treasury. Once a single scheme is decided upon, a final rate will be decided within the cost envelope of the R&D reliefs and announced at a future fiscal event.
The consultation seeks view on:
whether the new scheme should be an above the line RDEC-like credit;
proposals for any alternative schemes;
whether more generous support should be provided for more R&D intensive companies;
whether there should be a threshold for claiming for expenditure;
the specific treatment of subcontracting; and
possible simplification of the PAYE/NICs cap.
Victoria Atkins MP, financial secretary to the Treasury, said: ‘Getting R&D tax relief right and fit for the future sits at the heart of making sure the UK remains a competitive location for cutting edge research – helping new firms grow’.
Commenting on the news, Colin Hailey, managing partner of Confluence Tax, said: ‘Having a merged scheme is to be welcomed if it acknowledges one important difference: enhanced relief for knowledge intensive companies, such as in the life sciences, that keep their intellectual property and therefore their taxable profits in the UK. This is surely a logical approach for both taxpayers and governments committed to science and innovation.
‘However, the consultation does not address anti-fraud and anti-spurious claim measures,’ Hailey said. ‘The banning of contingent fee claims would be welcome as part of any modernisation of UK R&D tax relief.’
Tax expert Penny Simmons of Pinsent Masons thought it ‘disappointing that the government seems intent on pressing ahead with proposals to merge the two schemes, despite acknowledging that changes introduced in the UK Autumn Statement to scale back the SME R&D tax reliefs are already creating “challenges for some R&D intensive SMEs and those in the life sciences sector”.’
‘Given that the consultation specifically asks for input about whether additional support should be provided for different types of R&D and R&D intensive companies, it is hoped that the Treasury remains willing to engage constructively on this and that it will be possible to safeguard for the interests of R&D intensive SMEs and the future of UK-based R&D investment in start-up ventures,’ she said.
‘The timeline for implementation is very ambitious – allowing just over 12 months to design, legislate and implement the new scheme,’ Simmons added. ‘This may create challenges for R&D intensive businesses as they will have very little time to prepare and adjust their financial modelling to adapt to the new scheme.’
