The UK Government has launched an 8 week consultation on replacing the 2 existing R&D tax relief schemes (being, the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief) with a single scheme. This consultation comes in the wake of a last year’s Budget, when the Chancellor trailed the idea of substantial reform.
The Government proposes to model the new scheme on the current RDEC rules, so SMEs will see the most change. The Government anticipates that this will give SMEs greater certainty at an earlier date on the cash value of the relief available to them, as well as being easier to administer.
The consultation is wide-ranging, but some of the areas that the Government has specifically requested comments on include:
- how subcontracting should be factored into claims under the new single scheme;
- whether there should be targeted additional support for different types of R&D or for R&D intensive companies; and
- whether a threshold for claiming R&D tax relief should apply to the new single scheme.
The R&D tax credit system – particularly for SMEs – has seen a huge number of changes over the years as successive Budgets under multiple Chancellors try to strike the right balance between (1) encouraging innovation and (2) preventing waste (on undeserving claims) or even outright fraud / abuse. If a reformed, properly thought-through regime leads to more stability and certainty this should be applauded. A lot’s at stake though. R&D tax relief was worth a chunky £6.7 billion in 2020/21.
The consultation is due to close on 13 March 2023. Following this, the Government anticipates implementing any new single scheme from 1 April 2024.
If you have any questions on this, please do not hesitate to contact either Matthew Rowbotham (Matthew.Rowbotham@lewissilkin.com) or Emma McGrory (Emma.McGrory@lewissilkin.com).
UK to consult on ‘radical simplification’ of R&D regime