Consultation responses: R&D Tax Reliefs Review

HMRC have published the responses received to R&D Tax Reliefs Review: Consultation on a single scheme. The consultation sought views on combining the current SME and RDEC R&D Tax Reliefs.

•  R&D Tax Reliefs Review: Consultation on a single scheme was published on 13 January 2023 and was open for responses until 13 March 2023.
• It is hoped that merging the two schemes, SME and RDEC, would bring simplification, certainty over the value of any R&D claim (which, in turn, would help drive innovation) and reduce erroneous or fraudulent claims.
• There were 149 responses submitted and these have now been published.
•  The idea of merging the two reliefs into one based on the RDEC was broadly accepted by respondents. Reservations came mainly from SMEs, as the current SME scheme is more valuable, especially if loss-making.
• The proposed rewarding of sub-contractors for R&D work as opposed to the SME outsourcing the work, in line with the RDEC, met with concerns from those believing it would discourage SMEs from taking the financial risks of performing R&D. It was also viewed by some as unfair, as many SMEs did not have the internal resources to undertake the work themselves.
• 38% of respondents did not comment on their experiences of the PAYE/NICs cap. Those who did respond believed it was now unnecessary due to the introduction of the overseas expenditure exclusion.
• Slightly more respondents were against the introduction of a minimum threshold of spend for claims, than in favour. Some of those in favour did suggest other support, such as grants, for those R&D businesses that would not reach the threshold.
• The proposed implementation date of 1 April 2024 was met with mixed but equal views. 30% were neutral, 40% opposed and 30% in favour. Those against felt it was too ambitious a timeline and those in favour required upfront clarity including agreed policy, legislation and guidance before the start of the new scheme.

The Government response was as follows:

• There has been no decision made as yet.
• Draft legislation has been published, should the implementation go ahead. This is now open for technical consultation.
• The Government believes that this is a significant opportunity to simplify the reliefs, with the RDEC being the best approach.
• Relief for the customer where R&D is sub-contracted seems the most beneficial. There is an intention to allow the sub-contractor to claim where the customer is a non-UK corporation tax payer.
• The PAYE/NICs cap will be kept for now given the recently published high levels of error and fraud.

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?

R&D Tax Reliefs Review: Consultation on a single scheme 
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. 

External links

Consultation outcome: R&D Tax Reliefs Review: Consultation on a single scheme

R&D Merged Scheme: Draft legislation