The Association of Taxation Technicians (ATT) welcomes the announcement at today’s Budget that the Research & Development tax relief available to large companies will increase, but warns that many small and medium sized businesses (SMEs) will not feel the benefit.
The Chancellor announced at the Budget that the rate of tax relief available under the Research and Development Expenditure Credit (RDEC) scheme will increase from 12 per cent to 13 per cent from 1 April 2020.
Although some SMEs are able to claim relief under the RDEC scheme, the majority claim under a different, SME specific, regime.
Jeremy Coker, President of the ATT, said:
“We welcome the introduction of increased tax relief for R&D carried out by large companies but it is disappointing that there will be no corresponding increase in the relief for the majority of small and medium sized companies.
“Given the continuing political uncertainty surrounding Brexit, and the potential impact of COVID-19 on the economy, those SMEs which undertake research and development work are likely to be more in need of relief than ever.”
The Chancellor also announced at today’s Budget that the introduction of a cap on the tax credit payable by HMRC to loss making businesses under the SME R&D scheme, which was scheduled to come into effect from 1 April 2020, will be delayed by one year until April 2021.
Jeremy Coker continued:
“We are pleased to see that the Government has delayed the introduction of a cap on the repayable R&D credit available to SMEs.1
“We recognise that HMRC have to take steps to prevent fraudulent claims for credits. We have raised concerns previously that the proposed cap was something of a blunt instrument, and could affect many genuine businesses, in particular start-up businesses and those that use employee share schemes to incentivise their staff.2
“It is encouraging that the introduction of these proposals has been delayed, and we would urge HMRC to use this time to ensure that the final design not only acts to prevent abuse, but also ensures that those companies who need support the most do not lose out."
Notes for editors
1. Under the SME R&D scheme, companies can deduct an additional 130 per cent of their qualifying R&D costs from their profit. This means that for every £100 of qualifying spend an SME can deduct £230 for corporation tax purposes. Where a loss making company claims this enhanced deduction they can surrender part of that loss for a cash payment from HMRC. The amount payable by HMRC is 14.5% of the surrendered loss.
2. The ATT’s concerns are set out in their response to the previous HMRC consultation on the introduction of the repayable credit cap.