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Budget 2020: Research & Development (R&D) Changes

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Budget 2020 Overview: Research and Development (R&D) Tax Relief – Introduction

Budget 2020 announced some changes to the R&D tax relief system for companies.

What is R&D?

The R&D tax credit regime works by allowing a company to deduct a percentage of its allowable R&D expenditure from its Corporation Tax bill.

Broadly, R&D is classed as a project which seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty.

Catchy, eh?

Any UK business liable to corporation tax may be eligible for R&D tax credits, irrespective of their sector.

The level of relief will depend on the scheme the company applies under:

  • SME scheme: The level of relief under the SME scheme is, as at March 2018, 230% on qualifying R&D expenditure. Loss-making SMEs with no tax bill to reduce may claim a cash payment; or
  • Research & Development Expenditure Credit (“RDEC”) scheme:the taxable credit has been 12% of qualifying expenditure.

What is an SME?

A Company is an SME if:

  • it has fewer than 500 employees;
  • it has revenue under €100m; or
  • it has a balance sheet assets under €86m.

Increase in Research and Development Expenditure Credit (RDEC) rate

The Budget 2020 announced that the government will introduce legislation in Finance Bill 2020 to increase the rate of RDEC from 12% to 13%

This will take effect from 1 April 2020.

Consultation on research and development (R&D) tax credit qualifying costs

The government will consult on whether expenditure on data and cloud computing should qualify for R&D tax credits.

Preventing abuse of the R&D tax relief for small and medium enterprises (SME)

Budget 2020 announced that the government will delay the implementation of the PAYE cap on the payable tax credit in the SME R&D scheme until 1 April 2021.

This is as a result of feedback it has received following an initial consultation and now plans to consult on change to the cap’s design. This is in order to ensure that it targets abusive behaviour as intended.

The government will also publish a summary of responses to the first consultation.

 

If you have any queries about R&D tax relief, or tax matters in general, then please get in touch.

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