Government R&D Tax Credits Consultation: The UK government intends to raise investment in research and development to 2.4% of UK GDP by 2027 and wants to ensure that one of the key incentives for business is appropriate. At the 2021 Budget a review of R&D tax reliefs was launched, including a consultation seeking stakeholder views, to ensure that the relief available is competitive, up-to-date and well targeted.
The consultation closes at 11:59pm on 2 June 2021 and may result in changes to the current system.
You can respond by providing your answers to their proposed questions (page 18 of this document) by email to RDTaxReliefs@hmtreasury.gov.uk. Full details of how you can participate in the consultation, and the questions can be found here.
At present there are two main reliefs available to companies undertaking R&D in the UK.
The first is the Research and Development Expenditure Credit (RDEC) which is targeted at large companies, but can be accessed by SMEs in some circumstances. The RDEC is currently equal to 13% of qualifying R&D costs. The credit is accounted for as income and is therefore taxable at normal corporation tax levels.
The second is the Small and Medium sized Enterprises (SME) R&D Relief which allows for an additional deduction of 130% of qualifying costs from an SME’s profits on top of the normal 100% deduction. If the company is lossmaking the relief provides a tax credit worth 14.5% of the surrenderable element of that loss.
The consultation is intended to cover how the two reliefs operate, their differences and whether they are appropriate for the way in which R&D is now carried out. The consultation will also aim to determine whether amendments might be needed, for example to the scope of the R&D definition or the rates, to keep the UK system competitive and encourage further investment in R&D in the UK.
There are, of course, other incentives to carry out R&D. The patent system can provide an exclusive right for innovative developments, and the associated Patent Box can provide significant tax savings for profits derived from patented inventions.
If you need any help determining whether a development is patentable, or how best to protect the results of your R&D, please do not hesitate to get in touch with the writer, or a member of our experienced patent team.