Spring Budget 2017
The Chancellor once again stated the government’s strong support of innovation and highlighted the R&D tax credit scheme as an example of an ‘effective and internationally competitive element of the government’s support for innovation.” “But to make the UK even more attractive for R&D we have accepted industry calls for a reduction in administrative burdens around the scheme and will shortly bring forward measures to deliver them.” (The Rt Hon Philip Hammond MP)
In order to further support the scheme, “the government will take action to improve awareness of R&D tax credits among SMEs.” (Spring Budget)
This is broadly good news. The government accepts it needs to take action to improve awareness of R&D Tax credits. HMRC R&D Tax credit statistics published in Sep 2016 show whilst the total number of claims is increasing they have not risen by as much as we would have hoped. Claims made by SMEs rose by 16% in 2014-2015, compared to 23% for the 2013-2014 period and by 8% for large companies compared to 33% over the same periods. A major reason for not claiming is the anticipated difficulty and complexity involved in the process as well as complete lack of awareness that R&D tax relief exists.
Why were there no rate changes for R&D tax credits?
When Teresa May launched the industrial Strategy at the end of 2016, like many others in the tax industry we thought an increase for R&D tax credits was not far behind. The Chancellor repeated his previous announcement to decrease Corp Tax rate to 17% in 2020 which also has implications for R&D tax credits. When Corporation tax rate falls to 19% in April this year, and to 17% in April 2020, this will mean profitable companies will get less benefit from an R&D claim. For example a £100,000 deduction in profit saves £20,000 in tax at present, this will fall to £19,000, then £17,000 respectively. So although a rate increase was too much for this budget, in our view a change to the R&D tax credit rate will be necessary if the Corporation tax rate falls as stated.
As we are having another budget in Autumn of this year, that may be time for more positive changes.