Following a year of extraordinary economic challenge as a result of the ongoing COVID-19 pandemic, the focus of Budget 2021 was on protecting jobs and livelihoods. The full Budget 2021 report can be viewed here, whilst below we take a look at what it means for R&D Tax Credits.
R&D Tax Credits Headlines in Budget 2021
- Preventing abuse of R&D tax relief by capping the amount of SME payable R&D tax credit
- Launching a review of R&D tax reliefs to ensure the UK remains a competitive location for cutting-edge research
Preventing Abuse of R&D Tax Relief for SMEs
Budget 2021 confirmed that the capping of the amount of SME payable R&D tax credit that a business can receive in any one year will be introduced from 1st April 2021.
The new measure limits the amount of payable R&D tax credit which an SME can claim to £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NICs) liability for the period.
This impending change was first announced in Budget 2018 and was proposed as a measure to prevent abuse of the R&D Tax Credits scheme which had become a target for fraud. It was consulted on in Spring 2019, following which it was announced that changes would be made to its design. Implementation of the cap was then delayed until April 2021 to allow for further consultation on the changes. The measure will now take effect for accounting periods beginning on or after 1 April 2021.
A company is exempt from the cap if:
- its employees are creating, preparing to create or managing Intellectual Property (IP) and,
- it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons
New Consultation on R&D Tax Reliefs
The government has an ambitious target to raise total investment in R&D to 2.4% of UK GDP by 2027. R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation. It is therefore important to ensure that the reliefs remain up-to-date, competitive and well-targeted.
Last year the government consulted on bringing data and cloud computing costs into the scope of R&D Tax reliefs and agrees with many of the respondents that there is a strong case for doing so.
At Budget 2021 it announced a new review of the reliefs, supported by a consultation with stakeholders. This consultation will explore the nature of private-sector R&D investment in the UK, how that is supported or otherwise influenced by the R&D relief schemes, and where changes may be appropriate.
Full details of the new consultation and how to respond can be viewed here.
Future Fund: Breakthrough
A range of measures were proposed to support an investment led recovery including the launch of the £375 million ‘Future Fund: Breakthrough’ to support the scale up of the most innovative, R&D-intensive businesses. This initiative will see the government invest in life sciences and technology companies which are aiming to raise at least £20m of funding. It will take a stake with private venture capital matching its investment.
R&D Tax Credits Claims
R&D Tax Credits were introduced in the UK in 2000 and the latest recorded figures show that £33.3bn has since been claimed by businesses undertaking eligible R&D. The number of claimants and the value claimed continues to increase year on year as these valuable tax incentives help businesses increase cash flow and fund innovation activities.
R&D Funding Group are specialists in preparing R&D Tax claims and every member of our team has worked in this niche field for at least 15 years. We work with businesses across the UK, helping them obtain maximum benefit from the scheme whilst ensuring they adhere to HMRC guidelines.
To find out if your business is eligible to claim, or to check you are claiming your full entitlement, please contact us for a free, exploratory chat. We work on a contingency basis and there are no up-front or hidden fees.