Date
22 Feb 2023Category
Tax, R&D Tax CreditsAs noted in our insight last month, there is a Government consultation underway for the valuable Research & Development (R&D) tax relief system. This consultation runs until 13 March 2023 and we will be participating in the process on behalf of SMEs.
If you have a view and would like to provide a comment, please complete our short survey here. This survey should only take a couple of minutes of your time and ensure any of your views are taken into account for our submission.
In summary, the consultation is centred around canvassing opinion on the creation of a single scheme, rather than the two brackets that currently exist: the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief.
The consultation has also been announced on the back of increased criticism for the processing delays and system abuses that are impacting legitimate claims from businesses who are in need of the valuable cash injection.
We have documented below some of the proposed rule changes that are up for debate.
As mentioned above, there are two separate schemes in operation and the Government intends to unify these to make one rule for all claimants.
If SME scheme rules are chosen:
If RDEC scheme rules are chosen:
Under the current SME and RDEC schemes there is a cap on the payable credit available to companies based on their PAYE liability in the year. The Government intends to implement a similar cap in any single scheme.
Current cap under SME scheme rules:
Current cap under RDEC rules:
When the R&D relief was initially introduced to the tax system a minimum spend of qualifying expenditure had to be made in order to make a claim. The initial threshold was set at £25,000 but this was subsequently reduced to £10,000 before being completely abolished.
HMRC have seen an increase in low level claimants over recent years which they believe is where the majority of error and fraudulent activity is taking place.
Some have suggested reintroducing a threshold to focus compliance resource on higher value R&D claims to reduce overall error and fraud. This would mean that claims based on expenditure less than the threshold would not be valid.
However, this would negatively affect companies with small R&D claims, preventing them from claiming.
We are determined to provide a platform for SMEs to have their say. Please submit your views and any comments through our survey, which is accessible here.
If you have any questions on the upcoming R&D tax relief reductions and reform, please get in touch with your usual Azets advisor or a member of our specialist R&D team.