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R&D Tax Relief opportunities following the Budget, and beyond

R&D Tax Relief opportunities following the Budget, and beyond

Increases to Corporation Tax rates will mean changes to the effective rate of relief for R&D expenditure.

Changes to the loss relief rules mean that it may be possible to enhance the cashflow benefit of R&D claims through increased scope to carry-back losses, for which refunds are usually processed faster than R&D credits in the current year.

The Government’s 2021 consultation on further changes to the R&D tax relief regime may give rise to more opportunities in the future.

Impact of the Budget on R&D tax relief

SMEs with profits less than £50,000 will continue to be taxed at the current Corporation Tax rate of 19% from 1 April 2023, so for these businesses the rate of R&D tax relief benefits will remain the same.

However, SMEs with profits over £250,000 will be subject to Corporation Tax at 25% so the rate of tax relief for qualifying R&D expenditure increases from 24.7% to 32.5%.

Scope for further carry back of R&D claim driven losses

Legislation has been introduced in Finance Bill 2021 (expected to receive Royal Assent before the parliamentary summer recess in July) to extend the period for which trading losses can be carried back against historic profits. The extension will apply to trading losses realised by companies in accounting periods ending between 1 April 2020 and 31 March 2022. Trading losses carry back will be extended from the current one-year entitlement to a period of three years.

Where an R&D claim generates losses, instead of surrendering to generate an R&D tax credit to reduce the current period’s liability, there is now more scope to carry back the resulting losses and seek refunds of tax previously paid which can potentially be obtained sooner. This is because loss carry-back claims tend to be processed faster by HMRC than R&D credits surrendered in the current year.

At a time when for many of our clients’ cashflow is more important than ever, working with Creaseys and our partner company Kene Partners to optimise both the magnitude and use of R&D claims could make all the difference.

New consultation on R&D tax relief

The Government’s ambitious target to raise total R&D investment to 2.4% of UK GDP by 2027 remains, and the Budget announced a review of the above reliefs through the input of consultation with stakeholders, due to conclude in June 2021.

The consultation builds on a recent review to include data and cloud computing costs as a qualifying category of R&D expenditure, and as the pace of business change continues to accelerate (not least in response to the Pandemic), it has become clear that a full review of the scheme is necessary to make sure it is still fit for purpose.

Adam Kene, Managing Director of Creaseys partner company Kene Partners, and contributor to the consultation, notes:

“The enhanced review of the R&D tax relief scheme seeks to make the incentive more competitive globally and better direct funds to those most deserving. Businesses are set to benefit through a raft of improvements to ensure the longevity and effectiveness of the scheme over the years to come.”

These developments point towards exciting enhancements to the current R&D tax credits regime, with further changes set to arrive later in the year. We are here to assess these for you as they arise and keep you updated on the resulting opportunities.

If you are not sure whether any expenditure you have made or plan to make may qualify as R&D, and to ensure your company is maximising the support the scheme offers in light of the ongoing changes, speak to Creaseys about planning your R&D claim. Optimising your R&D claim position can significantly help in meeting your objectives for achieving your longer-term Big Picture goals.

Get in touch with our team on 01892 546546 to find out how we can help you.