27 November 2019
With a General Election in just over two weeks and the seemingly forever looming challenge of “the Scottish/European Play” (I don’t want to mention the B-word), what everyone surely craves and what business leaders demand is certainty.
One of the major tax incentives that a lot of my clients have been able to benefit from in the last two decades is Research & Development (R&D) Tax Relief which was introduced in 2000 for Small and Medium Sized companies and extended to cover larger companies in 2002.
R&D Tax Relief for SMEs is a Notified State Aid. The rate of relief given is therefore limited by our membership of the European Union and so notwithstanding the unknown landscape that lies ahead, I thought it worth looking at what the major parties have said about the future of this relief in their manifesto pledges.
After some considerable searching of the internet it became clear that the three main parties sitting in the whole of the UK have awareness of the relief and do make broad references to it.
For what it is worth, all parties seem in agreement that there is a need for a review of the relief and specifically the definition of what is and what is not R&D. Each claim is however still viewed on a case by case basis so I would encourage readers not just to discount their work as something “they need to do to increase the top line”.
Giving the constant technological changes that we are seeing, both the Conservatives and Liberal Democrats recognise there is a clear need to review and update the definition and potentially expand this to being in Cloud technology – something we have a strong focus on in relation to the use of the Cloud in accountancy platforms for our clients (see our dedicated Cloud website here).
In addition to the common problem area of recognising and clearly defining R&D activities, the manifestos appear to offer a contrasting view on the value of the relief and where and how it should be best targeted.
The Conservatives intend to build on recent increases to the rate of relief and have pledged a new 13% rate for relief for larger companies.
Conversely, the Labour manifesto headline summary suggests a phasing out of the relief for large companies altogether, albeit with a commitment to increase direct support for R&D, in order to raise the target of R&D spend as a % of GDP to 3% by 2030, interestingly the same aspirational target when the relief was first introduced twenty years ago.
There is less detail in the Liberal Democrats manifesto but there are encouraging signs that they would not just retain the relief but seek to extend its availability and application.
Is it here to stay?
Finally, I am regularly asked by clients whether the relief is going to be abolished because for some, it is arguably “free money” and so appears too good to be true.
The good news is that for me the outlook remains positive and I see nothing too alarming that will impact my core client base of owner-managed business and SMEs in the Midlands.
UHY have produced a useful guide to this relief which can be found here. In my career so far I have enjoyed breaking out from the traditional world of tax and seeing what great things are actually happening out in the real world – be that a new manufacturing process for pies, 3D printed false teeth or even plastic bullet technology to name but a few.
Alternatively, fill out our contact form here.