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Markel Tax

11 Mar 2020

Budget 2020: R&D

The content of the 2020 Budget did not deliver any dramatic news for the R&D landscape with only small changes to the RDEC scheme and the promise of further reviews later in the year. The overall picture is positive with the Government stating that they want to increase R&D funding (in all forms) to £22bn per year - ahead of France, China, Japan and the USA.

The RDEC scheme applies to large companies or SME projects that have benefitted from grant or customer funding and the RDEC rate will increase from 12% to 13% with effect from 1 April 2020 – the impact of this change is that claims made under this scheme will be worth 10.53p per £1 spent compared to 9.72p per £1 now. This is only a small increase, but does reflect a positive direction of travel. 

The positive intent of the budget was also demonstrated in the promise to consult on whether expenditure on data and cloud computing should qualify for R&D tax credits. This has been a long-standing source of frustration across many sectors as HMRC guidance is still primarily aimed at tangible work and does not reflect the way that R&D activity often takes place. We have found that this is an issue that causes confusion for a number of claimants and this review will hopefully provide clarity, as well as a widening of what expenditure can legitimately be included in a claim.

One change that has been proposed for a while is the introduction of a cap on the amount of the payable R&D tax credit, which was expected to be three times the annual PAYE liability of the company and was expected to be introduced in April 2020. Positively, this cap has now been delayed until April 2021 and HMRC will consult further on changes to the cap’s design, to ensure that it targets abusive behaviour while ensuring that eligible businesses are able to access the relief in a fair way.

There was positive news for the UK whisky industry, which has been suffering from the imposition of greater tariffs in the US. The government is expanding its support for the whisky industry by freezing spirits duty for this year but also allocating £10 million for R&D spend to help decarbonise UK distilleries. Although specific to the food and drink manufacturing sector, the relief is also designed to reward efforts to minimise environmental impact – a theme that was seen throughout the budget.

Other green initiatives which will encourage UK innovation and development include:

• a £500m fund (over the next five years) to support the rollout for a rapid charging network for electric vehicles

• a proposed plastic packaging tax is likely to encourage manufacturers to seek alternative solutions throughout the supply chain (with possible exemptions for certain types of medical packaging)

• an increase to the climate change levy on gas in order to encourage businesses to operate in a more environmentally friendly way

It is clear that the government is seeking to reward those who invest time and resources into R&D-related projects. 

For further information about R&D tax relief, or any other tax incentives and reliefs, please contact Chris Norris or Zoe Barraclough on 0114 236 4457.

Next article in series

11 Mar 2020

Budget 2020: First thoughts