Is this the best of times when it comes to making an investment in R&D?
It very well may be, but businesses could still do with a leg-up, according to Iain Robertson from Chartered Accountancy firm ammu. For many the Autumn Budget 2021 was looked upon as uneventful. However, according to Iain Robertson from accountancy firm, ammu, there were a couple of announcements that are worth keeping an eye on.
The Chancellor made a commitment to review the R&D tax relief system to ensure that the reliefs available to businesses remain competitive and well-targeted. He also announced a boost to R&D spending in the UK, setting a target of £20bn by the end of the current parliament. By making more public money available it is hoped that this will stimulate and incentivise more private sector investment.
The Government is determined to increase the overall gross spending in the UK on R&D to closer to 2.4% of GDP, again by the end of this parliament. UK companies and organisations spent 1.84% of GDP on R&D in 1985, while they only spent 1.74% in 2019. Given this context the 2.4% target will be very tough to get near, never mind meet.
To achieve the uplift the Chancellor is looking for we would be in favour of making the R&D tax reliefs that are currently available to the SME sector more easily accessible, and we would start with a couple of immediate changes and some that should be trialled over the next 12-18 months.
1. Immediate: How well known is the scheme? HMRC could easily flag up the potential to claim R&D tax credits when communicating with companies on other matters.
2. Very soon: Many companies simply don’t know whether they should be applying – and who they can trust to tell them. HMRC could produce case studies of applications they have approved. Backing this up with the creation of a helpline staffed by knowledgeable people to answer basic questions about eligibility would increase take-up (and discourage inappropriate claims).
3. Will take a little longer: The SME scheme seems to be unnecessarily complex meaning that it is very hard to know in advance whether a claim will be worth the effort. For example, an SME close to break-even would receive much less than SMEs that are loss-making or highly profitable, even with the same value of eligible R&D costs!
4. Medium Term: A register of approved agents would help companies to know who they could trust to help them with their claims. Some of us in the private sector have already had discussions about how to do this, but what’s really needed is for HMRC to hold a list of approved providers who have signed up to a code of practice.
5. Medium Term: Standardisation of forms for the application process (as some other countries have done) would simplify the process of applying and of approval. This should be relatively easy for SME claims. These changes would in our view help to incentivise more companies to make the investment in R&D this year – and not just in the sectors that are traditionally associated with R&D spending, the sciences, health and technology.
I have worked with companies across many industries and sectors, many of whom are undertaking R&D but don’t always refer to it as R&D, or account for it, nor claim back the money they could from HMRC for that matter. Getting the message out to the manufacturing and engineering sector that what they often see as the everyday, trial and error, could indeed qualify under either the RDEC scheme for larger companies or the R&D Tax Relief scheme for SMES, is another area that more could be done by the Treasury. The big announcements are one thing, some targeted communication to the engineering and manufacturing sector, similar to the promotion the recent apprenticeship schemes received would be a good start.
There are currently two forms of R&D tax reliefs available to companies on certain qualifying expenditure. A SME can claim enhanced deductions against its taxable profits for expenditure which is qualifying R&D expenditure – up to 230% of qualifying R&D costs where certain conditions are met. Larger companies can claim a research and development credit at 13% of qualifying expenditure. I also welcomed the inclusion of cloud computing and data costs as eligible expenditure for R&D tax credits.
This had been expected and brings the criteria into line with current business practice. I have put some examples of qualifying projects up on our website to give you a flavour for the diversity of projects that we have made a successful R&D tax credit claims and some further background on the scheme, qualifying costs and how to go about assessing your projects eligibility.
Drop me an email if you have a recent or existing project. or if you are considering a project, and you want to find out if it could be eligible.
Iain Robertson, ammu
Background information and scheme criteria
Examples of qualifying projects
R&D Tax Credit Claim calculator and eligibility assessment