United Kingdom
R & D tax credits – how supporting UK innovation drives a private sector led recovery – James Tetley
Recently there has been widespread speculation in the press and amongst concerned stakeholders, that the days of the current tax reliefs for R&D in the UK were numbered. What has subsequently become clear under the current government is that R&D tax relief is here to stay for the foreseeable future. Indeed in the recent Consultation paper, David Gauke points out that ‘the Government believes that high growth, high-tech companies will be the key component of the private sector led recovery and has a commitment to make the UK the most attractive place to start and invest in innovative technology companies. The Government recognises the value of R&D tax credits to companies undertaking R&D in the UK – from start-ups with little more than a new idea to multinational groups deciding where to site major R&D facilities’. A bold statement indeed, but from our involvement in the current Consultation process, our discussions on the R&D Consultative Committee and our experience in working with the local HMRC Specialist R&D Units; a statement that appears to hold water.
R&D tax credits provide nearly £1 billion of support to over 8,500 companies. SME’s account for 6,500 claimants at a cost to the Exchequer of £230 million, whilst 2,200 large companies claim around £700 million each year in R&D tax relief. That these are big numbers, there is no doubt, particularly in our current times of austerity, but maybe these proposals for reform shine a glimmer of light on companies relying so heavily on investment in innovation.
Current announcements
In this year’s Budget, George Osborne announced a number of immediate improvements to SME R&D relief, taking effect from 1 April 2011. These included an increase in the current enhanced tax deduction of 175% to 200%, with a further increase to 225% from 1 April 2012 and further consultation.
The latest proposals being discussed in the consultation include:
- Removal of the PAYE cap for SMEs and the £10,000 de minimus.
- Relaxing current rules for externally provided workers in order to better reflect use of personal service companies.
- Providing greater guidance on the principle of ‘uncertainty’ in cases where goods are being created (with a view to clarifying current concerns around the definition of production).
- Simplifying the rules for sub-contracted R&D.
- A pilot scheme for companies seeking ‘advance assurance’ over whether they will qualify for the relief.
The full detail can be found by clicking on the following link
http://www.hm-treasury.gov.uk/consult_r_d_tax_credits.htm
BDO will be preparing a response to this Consultation, and would welcome input from interested parties.
Recent announcements show that UK tax relief for innovation is headed in the right direction. We already have a highly valuable regime of tax reliefs for R&D, which is administered by experienced and approachable local specialist units and this looks to be getting better.
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