Amidst a Budget that was full of bold ideas and ambitious new plans to stimulate growth and investment in the UK, the Chancellor announced a plan to launch a wide reaching review of the current R&D tax incentives regime, to ensure they are still fit for purpose in a rapidly changing R&D environment.
This builds on a consultation in 2020, (focussed more specifically on eligible costs for claims involving software), in which RSM and around 50 other stakeholders lobbied the Government to consider a much broader review of the current reliefs, to ensure the R&D regime not only supports businesses investing in innovation, but more ambitiously that the UK remains high on the list of locations for cutting edge research.
The consultation leaves few options off the table and will consider broad questions such as ‘should R&D relief continue to be claimed through a corporation tax return (and if so, could the two regimes, SME and RDEC, be simplified to share a common mechanism?’) and ‘how should companies, agents and HMRC’s roles in the claim process be defined’.
Some more specific questions around the scope and nature of qualifying expenditure and whether the location the R&D is carried out should be relevant, through to the interesting issue of accounting treatment, and to what extent the capital/ revenue divide limits a company’s ability to make claims fully representative of their investment in innovation.
Underpinning these are additional questions that look at how changes (to the rates, mechanism, delivery or scope) might impact investment decisions. Not quite a clean sheet of paper – but close!
Whilst it’s important not to ‘throw the baby out with the bath water’, it’s really encouraging that the Government has listened to feedback and has agreed to throw the doors wide open to fresh ideas. This agreement will help to ensure that, 21 years on from its introduction, the R&D tax incentives regime can keep pace with the fast moving ways that R&D is carried out in the UK, and focus incentives where they will support businesses, drive investment decisions, and keep the UK as a favoured location for innovation. The Innovation Reliefs team at RSM look forward to contributing to this consultation process over the coming months.
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