Government recently consulted on whether to merge the SME R&D tax relief with the large company R&D Expenditure Credit (‘RDEC’) into a single scheme, seeking views from a wide audience. (See earlier blog post here)
The consultation broadly considered:
- SME tax relief becoming an ‘above the line’ credit
- How to deal with subcontractor costs under the merged regime
- Whether a cash repayment cap is still required
- Whether higher rates of benefit should be offered for more R&D intensive companies
- Whether the qualifying indirect activity (‘QIA’) rules influence R&D decision making and should be retained
- Whether a minimum claim threshold should be reintroduced
We submitted a representation on behalf of Bright R&D with input from our clients who claim under both regimes.
In summary, we asked for:
- Alignment of the SME and RDEC regimes so that both operate as ‘above the line’ credits, albeit at a higher rate of credit for SMEs (with less deep pockets). A higher rate for all SMEs rather than only ‘R&D intensive’ companies is fairer and less open to subjectivity / abuse;
- R&D credits for subcontractor activities to be given to the R&D owner, aligning with execution and decision making. This is vital so that R&D credits effectively target the right businesses to influence behaviours and drive R&D investment decisions;
- Simplification of the 7 step RDEC repayment mechanism to solve a problem for US inbounds – currently RDEC given in the UK can result in the benefit being taken back in US taxes!
- Removal of the repayment cap to simplify things and as no longer needed once overseas qualifying costs are limited;
- Patent box to similarly move to an above the line credit to have as much impact as possible in driving UK innovation.
Output from the consultation is expected later this year. For further information, or to discuss how this might affect your business, please get in touch.
