Autumn Budget announces record R&D spend

    One of the key highlights of the Autumn Budget was the government’s commitment to record research and development (R&D) spending, supported by an increase in the tax credit available. The government’s ambition is to raise the level of investment in R&D in the economy to 2.4% of GDP.

    The Research and Development Expenditure Credit (RDEC) is a standalone credit that is brought into account as a receipt in calculating profits. RDEC was first introduced on 1st April 2013. The current RDEC rate stands at 11% of qualifying R&D expenditure (previously increased from 10% on 1 April 2015).

    From 1 January 2018, the RDEC rate will be increased to 12% of qualifying expenditure incurred on or after this date. Legislation will be introduced in Finance Bill 2017-18, amending section 104M of Corporation Tax Act 2009.

    RDEC is available for all large companies incurring qualifying R&D expenditure. Small and medium sized enterprises (SMEs) which receive certain types of funding for R&D projects are also eligible for the credit. From 1 January 2018, the increase in the rate to 12% will allow claimant companies to recover 9.72% of qualifying expenditure, based on a 19% corporation tax rate. This is an increase on the current net benefit of 8.91%.

    Director of R&D Tax Services at Abbey Tax, John Moxon, summed up his thoughts on the recent announcement. 

    "R&D investment remains at the forefront of the government’s industrial strategy, as it looks to back innovators and new technologies to help drive the economy forward. This government has committed to the biggest R&D spending by any government in the last 40 years and I would urge our clients to talk to their own clients to explore any potential claims.

    Whilst the increase in tax credit should be welcomed, it was a little disappointing that the Autumn Budget changes will only benefit those companies claiming under the RDEC scheme – mainly large companies. The manner in which RDEC is calculated also means that the recent fall in corporation tax to 19% will give an additional boost to RDEC claimants.

    Contrast this with the SME scheme where no increase in the rate of relief was announced. The fall in the corporation tax rate to 19% reduces the value of SME claims, meaning large companies have had a double boost in recent months whereas smaller companies have had their R&D tax benefit reduced. It just seems odd to give ‘big business’ the benefits when now is a time we should be encouraging the many thousands of innovative SMEs in the UK to invest in research and development. 

    However, we shouldn’t be too downbeat. The recent announcement indicated continued commitment to R&D tax incentives and clients I have spoken to since the budget announcement were pleased at the changes. Additionally, SMEs which receive grant funding will benefit from the RDEC rate increase, given that RDEC is the scheme they must claim when funding is in place. From this perspective, SMEs have received a token increase in their benefit".   

    For a discussion on how to claim R&D tax relief for your clients, contact John Moxon, Director of R&D Tax Services or call 0114 236 4457.