What's L Day, you ask? Well, it's when the government dumps lots of draft legislation in our laps and hopes it all works. This is generally follow-through on the Government's announcements / promises / musings in the most recent Budget, and indeed that's what we have here. Creative sector and R&D tax reliefs are receiving a lot of attention.
The legislation to implement the governments promise to increase R&D payable credit rates for loss-making, R&D intensive SMEs has arrived. The effect of this is that the targeted businesses will be able to swap losses for paid tax credits at a higher rate (14.5% rather than 10%), with the effect backdated to 1 April 2023. However in order to qualify a company must be able to demonstrate that at least 40% of their expenditure is on R&D. Not one for dabblers.
More speculatively, the government has published its draft legislation for the potential merger of the existing SME R&D tax credit scheme with the expenditure credit based scheme for larger companies. The aim is to provide a combined scheme, based on the larger company scheme, which is simpler to operate and more predictable in its outcome, to allow for better budgeting. The response to the Government's consultation earlier in the year (which was also published today) signalled broad approval by respondents for the move. The main reservations were expressed by SMEs concerned about having to understand a new system (very frustrating if you've just got to grips with the current system) and concern that a change of system might disguise a reduction in overall generosity. The government hasn't yet committed to bringing in these changes from 1 April 2024, but has invited comment on the draft legislation.
Expenditure credit systems are the order of the day, because many of the creative sector tax reliefs are also expected to be reformed in a similar way, with a new Audio-Visual Expenditure Credit to replace the current film, high-end TV, animation and children’s TV tax reliefs, and Video Games Expenditure Credit to replace the Video Games Tax Relief. These changes will be implemented over a period of time from 1 January 2024 (optional switch for certain existing productions) to 1 April 2027 (when the old regimes are definitively abolished). New productions will be required to use the new systems if they start after 1 April 2025. The draft legislation has been published today.
Also published today were some additional clarificatory rules around what qualifies for Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibition Tax Relief, as well as some additional administrative changes to the claim system which will effect all creative sector tax reliefs. These changes are expected to be implemented over the course of 2024.
The government is committed, where possible, to publishing most tax legislation in draft for technical consultation before the relevant Finance Bill is introduced in Parliament.