Luvo Financial co-founder and partner Ian Batkin reflects on the features and measures of the Budget 2020 regarding R&D Tax Credits, which he believes, contained no great surprises and, if anything, was a little disappointing from an SME perspective.
The Chancellor announced the following changes / measures regarding Research and Development (R&D) Tax Credits in the recent Budget:
- Intention to increase economy-wide investment in R&D to 2.4% of GDP by 2027, with continuing commitment to the two UK R&D Schemes i.e. for both Large Companies (RDEC) and SME’s ~ very much as advertised / promised in the Conservative party’s election manifesto.
- R&D Expenditure Credits (RDEC) to increase from 12% to 13% for expenditure incurred from 01/04/20 onwards ~ with Corporation Tax remaining at 19%, the value that mostly Large Companies can now realise from the relief increases from 9.7% to 10.5% of eligible expenditure.
- Anti-avoidance measures that had been proposed to be introduced to the SME scheme from 01/04/20 are being deferred by one year, to 01/04/21, following consultation in 2019. There will be further consultation on the previously proposed cap on Payable Cash Credits that are claimable by SME’s (which had been proposed at 3x annual PAYE + NIC’s)
- Further consultation to be undertaken regarding whether qualifying R&D costs will be extended to potentially include the cost of buying data and the cost of cloud computing.
In all honesty, the Budget contained no great surprises and, if anything, was a little disappointing, from an SME perspective. This is because we and others were hoping that tangible changes might have been announced and included within the Budget that would have provided further encouragement for more SME’s to make claims – as well as better reward those SME’s who are already claiming. One such measure that had been touted was to increase the SME expenditure enhancement from 130% to 140% (or maybe even 150%), but unfortunately there was no specific mention of this in the Chancellor’s announcements.
Our view is that the further consultation on anti-avoidance measures makes sense and that it’s important to try to ensure that genuine claimants aren’t adversely affected by these measures. We believe that in time, qualifying expenditure costs will be extended that better reflect modern-day expenditure on R&D. These may well have been included within the Budget had significant time not been committed to resolving Brexit and on the Election.
It is clearly encouraging though that the Conservative government continue to be positive about incentivising R&D expenditure via R&D Tax Credits and have already delivered on a number of the promises included in their manifesto in this respect.
It will be interesting to see how the exact changes are reflected and if anything else is included (sneaked into) the Corporation Tax Act changes that reflect the Budget. We will obviously keep you abreast of anything significant in this respect, ongoing.