The recent 2020 Budget recently delivered by the Chancellor of the Exchequer at the House of Commons ushered in some adjustments to the R&D Tax Relief scheme and have given an insight into the government’s overall stance on the scheme. Below we have summarised these changes and what they mean to businesses that are claiming R&D Tax Relief.
Overall, it is extremely encouraging that post-Brexit the government is intensifying its support for the knowledge economy and ensuring that the UK is an attractive place for companies performing R&D.
1. PAYE / Cash Benefit Cap Delayed Until April 2021
We recently sent out a reminder of the Government’s proposed anti-abuse measure that would cap the cash benefit of R&D claims to three times the claimant company’s annual PAYE payments. This was due to come into effect for accounting periods ending on or after 1st April 2020 and would have mostly affected loss-making (or close to break-even) companies that outsource the majority of their R&D activities to non-salaried employees.
However, during consultation in early 2020 some problems were raised about elements of this proposed cap and HM Treasury has decided to further review these issues in order to address these concerns. This has resulted in the proposed cap being delayed until accounting periods ending on or after 1st April 2021.
We will be lobbying HMRC to positively discriminate in favour of loss-making companies with a genuine UK presence that outsource their R&D activities as a cost-saving measure.
2. Increase of RDEC Rate
In the build-up to last year’s elections, the Conservative Party manifesto had committed to increase the RDEC rate from 12% to 13% and they have done just that. The RDEC Scheme is primarily used by larger companies with over 500 employees and a turnover of over 100m Euros. This new rate will result in their benefit going up from 9.72% to 10.53% of qualifying R&D expenditure, or an additional £8,100 of benefit for every £1 million spent on eligible activities.
Although this may seem like a modest increase, it is the third such increase since 2015 and it signals the government’s intent to continue to offer large businesses increased incentives to invest in large-scale innovative projects.
3. Extending Eligibility to Data and Cloud Computing
HM Treasury has announced a consultation into whether companies should be able to include investments into data and cloud computing as eligible expenditure in their R&D claims when these investments contribute to a larger R&D project or activity.
Currently there is no cost category that describes these types of investments as HMRC do not accept that these costs represent software. This measure aims to accommodate new ways in which companies are carrying out their R&D activities. If it comes into effect, it will increase the claim value for companies that carry out their R&D on services like Azure, Amazon Web Services and Google Cloud.
We hope you found this update useful. If you need advice about any aspect of your R&D claim position, we’d be happy to offer advice without obligation. Contact our team here.