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R&D Tax Credits in the 2017 Budget

Date: 8th March 2017

The government continues its commitment to the R&D scheme.

“As I committed at the Autumn Statement, we’ve reviewed, with business, our R&D tax credit regime and concluded that it is globally competitive. But to make the UK even more attractive for R&D we have accepted industry calls for a reduction in administrative burdens around the scheme and will shortly bring forward measures to deliver them.”

Chancellor Philip Hammond, Budget Speech 2017

“Research and development (R&D) tax review – The Industrial Strategy green paper sets out the government’s ambition to drive up the level of private investment in science, research and innovation across the economy. The review of the R&D tax regime has found that the UK’s R&D tax credits regime is an effective and internationally competitive element of the government’s support for innovation. To further support investment, the government will make administrative changes to the Research and Development Expenditure Credit to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among SMEs. The government will continue to keep the competitiveness of the UK environment for R&D under review to ensure that the UK is profoundly pro-innovation.”

Spring Budget Policy Paper 2017

Comment

More detail to follow but broadly good news. No structural changes to the scheme.

How they reduce the administrative burden for companies will be interesting to see in a tax environment as the dual role HMRC have in terms of both giving out money but also in compliance, is very testing.

On competitiveness I am a bit surprised they have not increased the enhancement rate which currently stands at 230%, a 130% deduction from profit or loss of qualifying spend. Because when the Corporation Tax rate falls to 19% in April this year, and 17% in April 2020, this will mean profitable companies will get less benefit from an R&D claim: e.g. a £100,000 deduction in profit saves £20,000 in tax at present, this will fall to £19,000, then £17,000. So arguably the amount falls, and would the government want to see this fall given public statements on R&D?

Chris Toms, Director RandDTax.

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