The government has published a new consultation, 'R&D Tax Reliefs Review: Consultation on a single scheme'. Following the steps to equalise the relief provided by the two existing regimes, the government is seeking views on the schemes being merged into one.
The current R&D Tax Reliefs are provided through two separate regimes:
- Small or Medium-sized Enterprise (SME) Scheme, which operates on a deduction basis.
- R&D Expenditure Credit (RDEC), which is an above-the-line credit.
The RDEC provides relief for large companies and some SMEs in specific circumstances. Large companies cannot claim the SME deduction. The SME scheme has historically provided greater relief than the RDEC.
In 2021, the government launched aConsultation seeking views on what changes could be made to improve the schemes in place. In the Autumn Budget, the Chancellor announced Measures to make the two reliefs more comparative.
Now the government is seeking views on combining the two regimes to provide one RDEC-style relief. The consultation focuses on the design and implementation of a single scheme. If successful, the government aims to have the new scheme in place for expenditure claims on 1 April 2024.
This is the summary of the questions asked:
- Do you agree a new scheme should be an above-the-line RDEC-like credit? If not, what alternative would you propose?
- Will the taxability and subsequent different post-tax net benefits impact your decision-making when allocating R&D budgets?
- If you use RDEC now, is there anything in your view that should be changed?
- Do you agree the same treatment of subcontracting should apply to all claimants in the merged scheme?
- If so, where R&D activity is subcontracted, do you think that the customer should claim the tax relief, as in the SME scheme, or the subcontractor, the person carrying on the R&D, as in the RDEC?
- Can you see any positive or negative impacts on your business or sector from the Government adopting either approach?
- Do you have an alternative model you think could apply to all claimants in the new scheme? Please provide qualitative and quantitative evidence with your proposal.
- What are your experiences of the PAYE/National Insurance Contributions (NICs) cap?
- Are there any ways the Government could simplify the PAYE/NICs cap whilst ensuring there is protection against abuse?
- Which of the SME and RDEC PAYE & NICs cap should the Government implement in the new scheme?
- Should the Government change the way either cap is calculated if is taken forward? And if so, how?
- Do you consider the government should provide more generous support for different types of R&D or more R&D -intensive companies relative to less R&D-intensive companies?
- In the event this were to be done, how might this best be achieved within an overall cost envelope?
- If the schemes are merged do you agree the Government should implement the merged scheme on 'accounting periods starting on or after 1 April 2024?
- How can Government ensure SMEs are supported in the transfer into a new scheme?
- Does claiming for expenditure on qualifying indirect activities influence your decision to undertake R&D?
- Do you think a threshold should be implemented? If one was implemented at what level should it be introduced?
- What is the average amount of R&D expenditure per year per firm in your business or sector?
Useful guides on this topic
R&D: SME Tax credit scheme
What Research & Development (R&D) schemes are available for small and medium-sized companies undertaking R&D? How to make an R&D claim? What are the qualifying costs and how much can be claimed?
R&D: 'Large Company' scheme (RDEC) guide
What is the R&D Expenditure Credit (RDEC) Large Company Scheme for R&D relief? How does it work?
HMRC consultation: R&D Reliefs
In March 2021, HMRC published a consultation on the scope of 'R&D Tax Reliefs', which reviews the nature of private-sector R&D investment in the UK, how that is supported or otherwise impacted by the R&D relief schemes and where changes may be appropriate.
Autumn Statement: R&D Relief
In the Autumn Statement on 17 November 2022, the Chancellor announced changes to the available R&D Tax Relief rates, in a move aimed at targeting abuse, increasing compliance and rebalancing the relief.