I thought it would be useful to provide an overview of R&D tax relief and its relationship with Brexit. The R&D SME scheme is a state aid which previously fell under the provisions of European Union State Aid articles 107 and 108. Essentially the UK was bound by competition rules which provided for a level playing field in relation to what aid could be provided to businesses in each EU member state.
As part of the Brexit trade deal between the UK and the EU, the UK from 1 January 2021 (actually 11am on 31 December 2020) ceased to recognise these EU wide State Aid rules and so became reliant on the baseline position of the 'anti-subsidy' obligations of the World Trade Rules (WTO). However, both parties (UK & EU) did agree, under the Trade Operation Agreement (TCA) to create their own individual bodies to oversee their own subsidy controls regimes which ultimately will accomplish similar outcomes to what preceded them in relation to state aid, whilst also preventing unlawful competition between the UK and other European countries.
As the creation and implementation of a fully working UK 'subsidy control scheme', the UK government has produced a guidance document 'summary guide to awarding subsidies from 1 January 2021' . This document is very broad-brush and provides very little detail in relation to R&D.
Ultimately, and in my personal opinion, there will be no major adjustments to the R&D tax relief scheme in the short term. As a result of the UK’s departure from the European Union, the present UK Government has a number of more pressing and urgent problems to deal with and so the subsidy guidance document (noted above) will prove the basis of how R&D will be dealt with for the immediate future.
In the medium and longer term, there is the possibility that the R&D scheme may become more generous, due to the removal of the restrictions of the EU state aid rules and also the need for the UK to assist businesses recover from the damage inflicted by the COVID pandemic and (possibly) Brexit itself.
On this point, and again in my opinion, one possible solution could be the extension of the R&D scheme to non-corporation tax paying businesses. This extension of the scheme was aired a few years ago and so may now be brought back into consideration as one of the systems which could be used to attract entrepreneurs and research and development businesses to the UK to help bolster and assist in the growth of the UK economy?
As you see this is an area which will change as a result of Brexit, but those changes are not yet clear. As such I will keep you updated on any relevant changes relating to the R&D tax relief scheme as they arise.
The next step
Please do get in touch with Lee Pimlett or your local specialist if you have any questions regarding R&D.
