As a second child, fairness has always been important to me. This guides my work when preparing R&D claims, always seeking to ensure a company claims the right amount due to reward its innovation.
You can imagine my frustration then that UK R&D credits paid to US parented companies are mainly rewarding the US government! That is precisely what is happening with the R&D Expenditure Credit (‘RDEC’) following a US foreign tax credit rule change early in 2023. The UK company receives the RDEC, reducing the UK tax it must pay, which results in the parent company paying more tax to the US government (via the US ‘GILTI’ rules).
This cannot make sense, particularly given that the US is the largest source of inward investment to the UK [1] making this an expensive leakage!
We have raised the issue with HMRC and HM Treasury and even proposed an effective solution (at no cost to the exchequer) that also simplifies the regime overall. Sadly, we understand that other complexities in introducing the merged regime took priority. Ireland fixed a similar problem for its regime mid-2023, leaving the UK behind.
Surely then now is the time for government to take action to solve this?
See our article in Tax Journal [2] for further details and please get in touch if you are affected.
