Research and Development tax relief changes

Almost in every sector, there is research and development expenditure, your staffs costs are the main element in R & D claim. Generally, following sectors are eligible to make Research and Development reliefs:

• Vehicles sales and repairs
• Agencies in the sale of agricultural materials, chemicals, foods, household goods and others
• Wholesalers of food, electric goods, clothing, cosmetics and others
• Retailers of food, electric goods, software, books and others

R&D relief seems dynamic, ever since from its introduction in 2000. The Chancellor mentioned R&D relief in the recent Budget speech, but in respect to gradual changes. Rather he announced yet another consultation.

Consultation till then 2nd June 2021, is regarding a large ranging review in R&D reliefs and to figure out whether it is enough to meet government’s target for R&D support. Similarly, announcement of 2nd proposal is to analyze the effectiveness of tax credit schemes of R&D. In 2017, similar exercise was undertaken by Phillip Hammond.

Restrictions to stop the abuse of R&D relief by SME’s

From 1st April 2021 onwards, government has introduced a cap for any claims for credit payable based on two recent consultations.

• Introduce a threshold of £20,000 under which the cap will not apply.

• The cap will be the threshold amount plus three times the company’s total PAYE and National Insurance Contributions (NICs) liability for that year.
• Some of the related parties PAYE and NICs for the cap calculation will be taken into account in the CAP calculation.
• However, there is exemption for genuine R&D businesses.

Earlier year changes

• Repayable Expenditure Credit was increased to 12% from onwards 1st Jan 2018.
• From 1 April 2016, only the RDEC was available for claims under the Large Company Scheme.  
• R&D Advance Assurance scheme for companies claiming R&D for the first time was introduced in Nov 2015, assurance were given that the company will not be investigated for the first three accounting period.
• Universities and charities form 1st August 2015, were not allowed to claim R&D expenditure credit for own research or while working as a contractor.
•  From 1 April 2015:
  • The R&D tax credit for small and medium-sized companies was increased from 225% to 230%.
  • The ‘above the line’ credit for large companies increases from 10% to 11%.
  • Where for those entities, involving in R&D activity producing goods or services that are sold in the ordinary course of a business, the cost of consumable to produce such goods and services will not attract R&D tax credits. 

R&D Expenditure Credit (RDEC) and the SME relief

If we analyse the proposal regarding the R&D Expenditure Credit (RDEC) and the SME relief for large companies might get merged, is surprising. If this case is to take place, an RDEC system will be available to all companies despite of their sizes with different rate of reliefs.

It can be figured out why larger SMEs might happen to like this idea. However, I am reluctant that for smaller companies it will be much appealing.

Capital Expenditure on R & D

While broadening the area of qualifying expenditure, capital expenditure is always mentioned. As of known fact, there already exists a form of capital allowances i.e. R&D Allowances (RDAs) for capital expenditure on R&D. 

It is expected that changes in R&D expenditure will rise the rate of RDA (currently 100% first year allowance), based on our assessment

Also Read:

FRS 102, FRS 102 1A And FRS 105

GOING CONCERN REPORTING DURING COVID-19 PERIOD

We are a long established London firm of accountants, registered auditors and tax advisers covering Harrow, London and M25 areas. If you are interested in R & D tax relief, please contact Mr. Krishna Dahal directly through phone or email for free consultation.

Phone no: 0203 802 7810

Email: krishna@focusaccountants.co.uk