I would strongly recommend that anyone with interest in the R&D schemes and the current debates around them read this well considered and balanced report.
It is important to consider the report as a whole. But without editorialising too much I would say I wholeheartedly agree with the Lords critical view on the current “consultation on a single scheme”
- We accept that the two R&D schemes are now close in generosity but they differ in other respects, and it is clear that there are different views on whether the two R&D relief schemes should merge into a single RDEC-for-all scheme. In particular, SMEs value some aspects of the SME scheme which could be lost if this were the outcome. While we acknowledge that the Government has said that no final decision has yet been made on merging the two existing R&D tax relief schemes into a single RDEC for all scheme, we are disappointed that the consultation on a possible merger has been limited to design and implementation only. This is because it is imperative that the views of those who would be affected by such a change, particularly smaller businesses for which the existing relief provides essential support for their R&D activity, are fully taken into account in determining the ‘if’ as well as the ‘how’.
The current consultation has a massive element of prejudgment and it is hard to view it as achieving any of the high level goals it is espouses. In that respect it appears redundant in all respects apart from a further diminishment of the SME R&D schemes above the current strikes already made. 1st April 2024 is far to soon for the SME community to absorb the impact of such a change.
A measure currently being legislated on was also viewed negatively by the Lords report:
13. The requirement for pre-notification of claims, however, appears to be uniquely onerous, without any direct precedent within the tax system. It risks companies being unable to make legitimate claims, while its benefits in countering abuse are questionable. (Paragraph 85)
14. We recommend that the requirement that companies give notice of claims within six months after the end of their accounting period is dropped from the draft Finance Bill 2022–23 before it is introduced into Parliament.(Paragraph 86)
A very real concern does exist that the Government are rushing measures without adequate consultation. These measures may do more harm than good.
The role of the House of Lords in taking the time to consult widely and produce a well reasoned report is invaluable. It is hoped that the Government take on these views and take due care when reforming the R&D schemes.
Christopher Toms MA MAAT – Compliance Director RandDTax