The only substantive change to the R&D Tax Credit regime in the budget were around RDEC for large company claims:
- Rate increase from 11% to 12% with effect from 1 January 2018.
- Introduction of Advanced Clearance Service (The SME scheme already has Advanced Assurance)
Full details can be found in section 5.5 of the Autumn Budget 2017 Policy Paper.
Confidence is crucial.
The tone of the budget has been supportive of the regime and this continued support is welcome especially in the light of the, in our view, poor recommendation on the scheme which came from the Institute of Public Policy Research (IPPR). Prior to the budget they suggested ending the scheme. We think, and more importantly the governments agrees, this would damage the economy.
There is a particular sophistication required in analysing data about the impact of R&D claims. Their has been a spectacular growth in new claimants in recent years. These claimants often did not know about the regime prior to claiming, and will often claim for work done in the prior two accounting periods that qualified. Clearly, those past decisions on investment were not influenced by R&D tax credits. However, as confidence in the claim process grows and companies see the benefit it is very hard to rationally take the view that the money received will not influence future decisions. Confidence is key. While bureaucratic red tape, that scares potential claimants, is the biggest threat to confidence. Any money going into a business has to influence decisions to invest. That is just common sense. Companies will invest less if the scheme is scrapped and the beauty of the R&D Tax Credit Scheme is that it is not targeted on particular sectors, and as part of self assessment is not overly bureaucratic, unlike for example applying for Grants. It is also not competitive in the sense of competing for a slice of a pot of Grant funding.
The Treasury view is that “For every £1 that goes on the relief, up to £2.35 in investment is created”. Our experience on the ground talking to hundreds of companies backs this positive view 100%. One of our consultants, Tim Walsh Bsc,MBA,CTA wrote his MBA paper on the impact of the scheme on SME’s. This research showed a far more positive impact than suggested by the IPPR.
No changes to the rates for SMEs.
Some of the post budget coverage has been along the lines of “increases for Large Companies but not SMEs, so unfair!!!………..” It is an easy view to take. However, I would just make two points:
- The SME scheme is Notified State Aid due to its generous nature, @ 18-33% of qualifying costs back depending on the tax position, so while RDEC has increased to 12% the SME scheme is still much better.
- Because the SME scheme is generous state aid it requires EU approval. It is our understanding that the last increase brought it to the maximum level the European Commission would allow. We will have to wait for the post Brexit landscape to clarify to see if the UK Government will have the freedom to increase the rate. It simply could not happen now.
Companies that do claim should be confident in the governments support of the regime and continue to invest in R&D on that basis. Those that have not claimed should get no obligation advice from a specialist like ourselves today, you have nothing to lose and a lot to gain.
Chris Toms, Director RandDTax.