The Budget 2020 – changes to R&D tax relief
The Chancellor has set out plans to increase support for Research and Development (R&D) and has announced further enhancements to R&D tax relief in order to boost investment from the private sector.
Investing in Innovation
The government has set the objective of increasing direct support for R&D to 0.8% of GDP and placing the UK among the top quarter of OECD nations – ahead of the USA, Japan, France and China. It also aims to increase economy-wide investment in R&D to 2.4% of GDP by 2027 and put science, innovation and technology at the heart of the UK’s investment strategy.
In order to boost investment from the private sector, the government has announced that it will increase the rate of R&D tax credits, delay introducing restrictions for loss-making companies and consult on widening the definition of qualifying expenditure to include data and cloud computing.
With these recent announcements, there has never been a better time to make a R&D claim and companies should not overlook this generous tax relief.
The 3 key tax changes announced in the Budget:
1. An increase in the Research and Development Expenditure Credit
The rate of tax credit for companies falling within the Research and Development Expenditure Credit (RDEC) scheme will rise from 12% to 13% from 1 April 2020. This relief is given to companies undertaking qualifying R&D as an above the line credit.
No changes were announced to Small or Medium-sized Enterprises (SME’s) R&D tax relief. Under the SME scheme, tax relief will continue to be given as an enhanced deduction equal to 230% of qualifying costs, that reduces the taxable profits/ increases the trading losses of the company.
2. A delay in introducing restrictions on loss-making companies
The 2018 Budget announced that, from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. The aim of this cap was to prevent abuse of the relief, however concerns were raised that the cap would also affect eligible businesses who were not undertaking abusive behavior.
The government has announced in the Budget 2020 that the implementation of the restriction will be delayed to 1 April 2021 and that it will consult on changes to the cap’s design to ensure that it targets abusive behavior as intended while ensuring that eligible business are able to access the relief.
3. Consultation on data and cloud computing
The government will consult on widening the definition of qualifying expenditure to include data and cloud computing.
R&D tax reliefs are HMRC incentives created to encourage innovation and technological advances in the UK. For more information, read our R&D tax relief guide here.
Am I eligible?
Many companies carry out eligible R&D activities without realising that this work qualifies for relief.
R&D tax incentives are not just for niche sectors – eligible companies can be in any sector, any size, and even be loss-making. A common misconception is that R&D incentives are only for those who undertake scientific research in a laboratory, but this is certainly not the case.
How we can help
We have extensive experience of making successful R&D tax relief claims. If you would like to discuss whether your company may be eligible to claim R&D relief, please get in touch with us.
More from our tax experts
You can find all of our latest tax articles and tax resources here.
If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.
Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.
Free initial consultation
Tax Director, Sheffield
0114 266 7141