R&D tax credit up, but too many businesses fail to claim!
R&D tax relief provides cash savings, either in the form of reductions in tax or cash refunds. There are two schemes depending on the size of the business, with the more generous SME relief being available where a company or group has less than 500 staff and either €100m turnover or €86m balance sheet and the RDEC scheme for businesses exceeding that.
The Chancellor today announced an increase in the headline rate of RDEC from 11% to 12% from 1 January 2018. As this amount is subject to corporation tax the effective cash savings are increasing from 8.91% to 9.72% of the R&D spend (and from 7.7% in 2013).
It is interesting that the SME R&D tax relief benefits did not increase, as this is the first time since RDEC’s introduction that the two have not been increased together. Given that SME relief is currently capped (by EU state aid rules) and was at its maximum level compared to the RDEC, it therefore leaves space for the SME scheme to grow in the future.
Therefore whilst not a huge increase it takes away any uncertainty and highlights the Government’s commitment to R&D tax relief.
Recently released figures show that over £2.9bn is given away in the two R&D schemes with every £1 spent returning £2.30 to the economy. However as the definition of what is R&D is very widely drawn, there are many businesses that could claim that are not doing.
It was also announced that there will be a new advanced clearance service to provide agreement and certainty for three years is to be piloted. There is currently a clearance procedure in place for the SME scheme however this has proved to be much more time consuming and complex than actually making the claim, and whilst we hope that this new service is better designed and more useful, as the existing one has not been amended it is likely that the new one will be on the same basis and therefore we do not expect very high take up.