On 13 January, HM Treasury launched a consultation on the design of a potential single research and development (R&D) scheme. The single scheme would be based on the current R&D expenditure credit (RDEC) scheme, which is currently aimed at larger companies.
The consultation notes that the UK is very unusual in operating two schemes: the regime for small and medium-sized enterprises (SMEs), and the RDEC. It suggests that moving to one unified regime should deliver simplification.
The SME scheme has been criticised for being susceptible to fraud and abuse. Both regimes have been subject to reforms, many of which are due to take effect from 1 April 2023.
The changes in headline rates – increasing the RDEC rate with a simultaneous decrease in the SME deduction and credit rate – are designed to start bringing the existing schemes into line ahead of the potential introduction of a single scheme. These rate changes were announced at the Autumn Budget 2022 and are enacted in the Finance Act 2023.
The consultation does not cover the rate of relief. This will be decided within the cost envelope of the R&D reliefs to be announced at a future fiscal event. However, the Treasury acknowledges that additional support for different types of R&D or R&D intensive companies could be beneficial.
This could involve more targeted support for certain sectors, such as green technology or life sciences. The consultation invites views from stakeholders around providing more generous support for different types of R&D within the overall cost envelope.
Other questions raised in the consultation focus on how to manage subcontracting costs in a merged scheme, the quantum of any cap linked to claimants’ PAYE and national insurance contributions bill, and whether a minimum expenditure threshold should be re-introduced to tackle abuse.
Many SME stakeholders will be disappointed to see this shift and will be concerned at yet another change for companies to navigate. Careful thought will need to be given as to how to support companies in the transition. The consultation asks for feedback on the support that SMEs might need.
If the R&D tax relief schemes are merged, the consultation suggests that this should apply to accounting periods starting on or after 1 April 2024.
The Tax Faculty will continue working with the Treasury on developments in R&D tax relief.
If anybody wishes to provide input into ICAEW’s response, please contact Angela Clegg.
ICAEW and Tax Faculty members can read more on the changes to R&D tax relief from 1 April 2023 in TAXline.
The Tax Faculty
ICAEW's Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.Sign up for TAXwireJoin the Tax Faculty
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.