Changes to the R&D Tax Relief and Credit Schemes following the Budget Announcement
The UK coalition government announced its 2011 budget today. Extensive tax measures have been proposed and will be working through the legislative process. The overall objective is clear: help the country emerge out of the recession and reduce the largest public spending deficit in post war history. To achieve this, tax policies are designed to help foster a strong and stable economic environment in which growth and fairness are supported.
Amongst the measures, a number of incentives specific to the UK Research & Development tax relief schemes have been introduced which may have an impact on many companies in the UK.
Financial support to SMEs has been enhanced – subject to EC approval, from 1 April 2011 qualifying expenditure will attract a relief up to 200% (up from 175% under current rules).
PAYE & NIC liability cap is to be removed - subject to further consultation. Under the current legislation, SMEs claiming a payable cash credits by surrendering tax losses need to account for their PAYE & NIC liabilities, which may restrict the amount of cash receivable by the company.
“This typically applies to start-up companies where directors may not pay themselves to the level they are entitled to in order to preserve cash. We have had in the past a number of cases where startup companies could not claim the cash credit given this cap. This move is certainly a step forward and demonstrates the government’s determination to help the smallest companies flourish. We welcome this initiative” - Leyton
Companies undertaking R&D work as subcontractor – current rules restrict relief available. Changes are to be introduced to simplify the rules, again subject to further consultation.
“This has been an area that typically causes confusion as the rules are complicated and relief is restricted based on a range of conditions. We welcome government initiatives to simplify this area of the scheme so that tax incentives can be a closer match to commercial reality” - Leyton
Minimum qualifying spend will also to be abolished in due course – currently there is a £10,000 minimum qualifying spend requirement per annum for each claimant company.
“This definitely helps more companies begin claiming the relief. In practice, we do not foresee a significant impact on the economy of this given the relatively small size of the benefit to companies in this category. It is also a little early to see how this may impact on HMRC practice in claim review given the potential of an influx of smaller claims” - Leyton
Many of the above measures have been introduced following the government’s consultation on the effective operation of the schemes. As a leading R&D tax consultancy, Leyton has participated in this consultation by suggesting a range of changes that are aimed at providing extra help to UK companies investing in R&D, especially SMEs. We are pleased to learn from today’s budget that our headline suggestion has been adopted by the government in re-directing public resources to help innovative SMEs in the UK.
We are in close contact with HMRC and further updates on the proposed changes will be available when announced.