Consultation on R&D Tax Reliefs

The government has an ambitious target to raise total investment in research and development to 2.4% of UK GDP by 2027. R&D tax reliefs pay a crucial role in incentivising this investment by providing generous tax reliefs to companies undertaking qualifying R&D. It is therefore important to ensure that the reliefs remain up-to-date and well targeted. 

At Budget 2021, the government announced a review of the reliefs, supported by a consultation with stakeholders to explore the nature of private-sector R&D investment in the UK, how that is supported and where changes may be appropriate. The consultation closes on 2 June 2021. 

Overview of the R&D regime

R&D reliefs are currently available under two schemes:

• SME scheme: 230% deduction or tax credit of 14.5% if the company is loss-making. This scheme is only available to SMEs; and

• Research and Development Expenditure Credit (RDEC): a 13% ‘above the line’ credit which is primarily used by larger companies (and in some instances by SMEs where the SME relief is not available). 

Consultation topics

The broad-ranging consultation considers various aspects and invites responses on whether the two current schemes should be combined. The consultation also considers the location of R&D claims and whether R&D reliefs could be used to incentivise R&D with a social value, for example, development of green technology. 

There is also a possibility that the government may consider restricting relief in some situations where the R&D activity takes place outside the UK. 

The consultation broadly covers the following aspects:

• How the two R&D relief schemes support R&D in the UK, including how they operate, how they interact with the way modern R&D is done, and the main differences in design between them;
• Whether the schemes should be amended to remain internationally competitive and keep the UK at the cutting edge of innovation;
• Whether the definition of R&D and the scope of what qualifies for relief remain fit for purpose; and
• Whether current rates of relief, and the difference in rates between RDEC and the SME scheme, remain appropriate. 

The government is interested in receiving representations from a wide range of interested parties and stakeholders and is particularly interested in responses from:

• Firms that undertake R&D, or might consider doing so in future;

• Business groups and trade associations;

• Accountants and accountancy bodies; and

• Academic institutions (universities, scientific research bodies).

R&D tax reliefs are one of the most generous reliefs offered by the UK tax system and can be a very useful source of cash impetus particularly in the current climate, by providing cash tax savings of up to 33% of qualifying R&D expenditure. 

With the government’s continued commitment to raise investment in research and development, R&D tax reliefs are here to stay. At ETC Tax, we have a dedicated team of R&D tax advisers who have several years of specialist experience of managing the R&D claim process and can handle your or your client’s R&D claims from start to finish.

If you would like to discuss whether you or your client qualifies for this general relief, please get in touch.