Rule changes create double headache for R&D claimants
15 Aug 2023
Reforms to the system of tax relief for research and development projects could increase the administrative burden and limit claim eligibility for many manufacturing companies, warn analysts.
From this month those claiming under either the Research and Development Expenditure Credit (RDEC) or the small or medium enterprises (SME) R&D relief schemes must now complete a new form to disclose the level financial expertise to which an applicant has access.
The so-called ‘Additional Information Form’ is part of a move to combat the unexpectedly high number of faulty or illegal applications being made. A re-assessment of data gathered for 2020-21 suggested that the proportion could be more than four times higher than previously identified.
At the same time, further draft legislation has been released for the merger of the RDEC and SME schemes,
Innovation Incentives partner at BDO Carrie Rutland acknowledged this would serve to simplify the system and cut administrative costs to the Exchequer but she warned it could result in the UK becoming less attractive to inward investors.”
Mark Smith, partner of Innovation Incentives at consultancy Ayming warned that UK R&D was about to suffer “a major setback” . A key issue for larger businesses arose from the decision to apply the cost rules for the SME scheme to all applications.
“Hidden under the radar, there’s a concerning barrier, which will significantly dampen the innovation potential of the UK’s economy,” he explained.
“The Government plans to merge the two R&D schemes, expanding the cost rules of the SME scheme to apply to businesses of all sizes. The new rules will prevent claims for subcontracted R&D, meaning the companies that are doing the R&D won’t be eligible to receive the funding for it.”
While the companies that commission R&D will be allowed to claim, many would unable to do so because they would lack the technical expertise in the R&D carried out, he continued.
Using the example of the construction industry, Smith said the relative stability of the R&D schemes had been a significant driver for increased innovation but the proposed changes would see the R&D incentive “bulldozed”.
“The purpose of the scheme is to incentivise greater levels of innovation – spurred by ambitious businesses that reap the benefits of the effort they put into R&D. Take that immediate benefit away and incentive is dangerously eroded. If they go ahead, the proposals will leave many businesses without funding, which can only be a bad thing for the UK economy,” he warned.
Smith’s employer warned recently that the Government decision to bring forward the deadline for consultation to 12th September leaves little time to respond after absences over the summer period.
With an April 2024 deadline for implementation, the risk, stated Ayming, was that the legislation will become law without proper scrutiny.
Outlining the proposals on the Government website HM Revenue & Customs stated only that “consideration will be given to evaluating the policy after five years of monitoring data have been analysed and collected”.
Pic: Sheffield AMRC
