R&D Tax Credits – Chancellor Adds Value!
In his Autumn Statement on 3rd December 2014 the UK Chancellor announced a number of changes to the Research and Development tax relief/credit schemes.
The changes relate to both the large company (RDEC) scheme and the SME (Small and Medium Enterprise) R&D tax credit scheme.
The good news is that the changes are generally very positive with the rates of relief increased for both schemes.
Increased R&D claim rates
For expenditure on or after 1 April 2015:
- the rate of the above-the-line RDEC (Research and Development Expenditure Credit) scheme will be increased from 10% to 11%; this will give a net R&D claim benefit worth 8.8% of their qualifying R&D expenditure.
- the additional deduction under the SME scheme will be increased from 125% to 130% (total deduction increases from 225% to 230%), giving a net claim benefit worth 26% of the qualifying R&D expenditure, where the R&D claims is offset against corporation tax.
- if the SME is claiming against a loss the payable tax credit rate stays at 14.5%, so loss making SME’s will receive a cash credit of 33.35 pence (previously 32.63 pence) for every pound spent on qualifying R&D.
Consultation on issues faced by smaller businesses
The government is also planning a consultation on issues faced by smaller businesses claiming R&D tax credits. The consultation aims to establish an advanced assurance process for companies making their first R&D claim under the SME scheme and it will look at improving the R&D guidance.
HMRC R&D officers have long been saying that the rules around certain elements of the R&D scheme are going to be reviewed, so this consultation is likely to be the preliminary to that happening.
Ensuring the reliefs remain well targeted
The rules relating to claiming the costs of consumable items incorporated in products that are sold are to be tightened from 1 April 2015 with a restriction making the cost of consumable items incorporated in products that are sold ineligible as an R&D cost.
This restriction is a trade-off with the yield from implementing this measure being ploughed back in to support the increased claim rates as listed above.
Are you ready to find out if you qualify or how much your R&D claims could be worth?