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PATRONS


Budget 2021: How will R&D tax relief be affected?


The key message to come out of the latest budget was that research and development (R&D) remains an important part of the UK’s recovery plan, with the Government keen to increase R&D investment to 2.4% of GDP by 2027. This is good news for companies looking to take advantage of R&D tax relief schemes, explains Scott Burkinshaw (pictured), tax partner at Chesterfield-based accountancy firm Shorts.


WILL THE BUDGET IMPACT R&D TAX RELIEF CLAIMANTS? While there was little of immediate impact for current R&D tax relief claimants in last month’s budget, there are several points to note that will have an effect in future years, including the Government indicating its commitment to continued support for R&D tax relief through an in-depth consultation on the scheme’s current operation. Here we summarise some of the main points of interest for innovative companies.


CONSULTATION ON THE FUTURE OF R&D TAX RELIEF As part of the aim to increase investment in R&D, the Government announced a review of R&D tax relief to ensure it helps the UK to be a competitive location to carry out R&D and that the relief is fit for purpose. The review will cover the definition of R&D, eligibility and scope of the relief (for example, extending the relief to the social sciences sector) and also potential operational improvements. A previous consultation on


extending qualifying costs to include data and cloud computing has been rolled into this consultation, which is also looking at whether there should be additional relief for capital costs. One point to note is that the


consultation highlights the fact that


advisor to understand if this new rule will impact you.


Loss carry-back rules Not directly an R&D measure, the change to the loss carry-back rules may have an impact on how certain claimants can best access the relief. Broadly speaking, for accounting


Rishi Sunak unveiled a 'super-deduction' at the budget


the existing SME relief is different in the context of other international schemes, operating as an additional deduction rather than credit.


BUDGET ANNOUNCEMENTS WITH AN IMMEDIATE IMPACT PAYE cap As part of an attempt by HMRC to reduce abuse of the R&D credit scheme, this has the potential to impact genuine claimants. Essentially, the payable R&D


credit is restricted to £20,000, plus 300% of the company’s PAYE and national insurance costs. The start date for this new


legislation has been delayed until accounting periods beginning on, or after, 1 April 2021 (previously the change applied to all companies from 1 April 2021). If you claim, or expect to claim, an R&D credit in excess of £20,000 we would recommend contacting an R&D


periods ending between 1 April 2020 and 31 March 2022, taxable trading losses will be able to be carried back for three years, rather than the usual 12 months. Companies that have either


cashed in losses for a payable credit at 14.5%, or are carrying forward losses for future relief, could review whether this change now enables them to utilise losses against prior years’ liabilities for a repayment at 19%.


Super-deduction Again, not specifically related to R&D but of interest to companies investing in R&D facilities in the UK, an enhanced first-year capital allowance will apply for expenditure between 1 April 2021 and 31 March 2023. Qualifying plant and machinery


will be eligible for a super- deduction of 130%, which can be combined with the existing 100% research and development allowances (RDAs) on all capital expenditure relating to R&D facilities (excluding land).


How will corporation tax increases impact R&D claims?


While there were no changes to the rates of R&D relief, the proposed increase in the main rate of corporation tax to 25% from 1 April 2023 will impact on the value of future R&D claims. Briefly, companies with profits


under £50,000 will be subject to tax at 19%, companies with profits over £250,000 will be taxed at 25%, and there will be a marginal rate calculation for profits in between these two parameters. As the SME R&D relief is an additional deduction against taxable profits of 130% of qualifying costs, a company with taxable profits over £250,000 could see the value of its SME R&D claim increase from 24.7% to 32.5%. However, there may be an


adverse effect for claimants of the R&D expenditure credit (RDEC) scheme, which is a taxable notional credit, as the increased corporation tax rate will reduce the benefit of an RDEC claim from 10.53% to 9.75%. It’s worth noting that should the


corporation tax rate increase, then the value of the patent box tax relief will also increase. This is because the current


patent box rules tax patented profits at 10% and, therefore, the saving for companies paying tax at the main rate of 25% becomes 15% rather than the current 9%. This additional value may encourage more companies to review their patent box eligibility.


THE CHAMBER IS HONOURED BY THE SUPPORT OF ITS STRATEGIC PARTNERS AND PATRONS


business network April 2021


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