How the UK's Expanding R&D Tax Relief will help with your Business

Kirby & Haslam Budgeting

On Wednesday 3rd March 2021, the UK Chancellor of the Exchequer- Rishi Sunak delivered his budget announcement with a wide range of schemes that will send rippling effects throughout the UK economy, for months to come.

In a bid to transform the UK into a “scientific superpower”, Mr Sunak declared that the Treasury would consult on reforming two longstanding tax benefits for R&D-based companies. These include:

  • Credits for R&D
  • Relief on employee stock options.

There is currently no obligation where to qualify for R&D tax relief, spending must take place in the UK. The Treasury is now seeking to investigate when R&D tax reliefs are being claimed, how much of the claim is relevant to the process undertaken internationally and what benefits of accomplishing the activity overseas may be.

Mr Sunak also introduced a cap to the available R&D tax reliefs for SMEs. The reason behind this statement, was to prevent discerned abuse of the system in the budget. The amount of R&D tax relief that can be claimed per annum will be capped at £20,000 plus three times the company’s aggregate PAYE and national insurance contributions’ liability and will apply for accounting periods commencing on or after 1st April 2021.

What are the benefits to your business?

Fortunately, there are currently R&D tax reliefs for businesses of all sizes and sectors. Them being:

  • Small and medium sized enterprises (SME) R&D Relief
  • Research and Development Expenditure Credit (RDEC)

Therefore, it does not matter what industry and size your business operates as. The RDEC is a scheme launched for the larger corporations whereas the SME-R&D relief is the smaller businesses and start-ups.

Another benefit is that the tax reliefs are not narrowed down to specific tangible costs. On the contrary, it covers a comprehensive range of costs that are made eligible for the schemes.  These range from: software and clinical trial volunteers to prototypes and direct staffing costs such as employer’s national insurance contribution and staff wages.

What you may not have also known, is that there is no minimum claim requirement for R&D tax credits. This was an incentive introduced in April 2012 where the Government decided to remove the minimum expenditure limit which originally was £10,000. This is a huge benefit for your business as the ongoing expansion of tax relief can save your business even more on costs now that there is no minimum spend on R&D.

What does this mean in the long term?

This initial announcement speaks volumes about the level of intention that the UK Government have with pushing R&D to new heights. It is a move that aims to keep the UK competitive on the global stage as it sparks belief that innovation in R&D will be the driving force for this aim. Therefore, the easing of tax reliefs and abolishment of minimum expenditure (over-time) proves how much more investment into R&D, firms should make with minimal risk and costs involved within the process.