Budget 2020: Improved R&D tax incentives for innovative companies

Budget 2020: Improved R&D tax incentives for innovative companies

Caroline Hunt, Director, Corporate Tax
11/03/2020
Budget 2020: Improved R&D tax incentives for innovative companies
R&D tax credits are one of the most generous tax incentives available to innovative companies who invest employee time and money on developing new and improved products or processes.

In the 2020 Budget, the Government has announced that new R&D legislation is to be introduced from April 2020 to increase the R&D tax credit from 12% to 13%.

The announcement is to be welcomed, especially given the fact that under Labour’s manifesto, set out last December, this tax incentive would have been phased out. However, this proposal only relates to companies claiming R&D tax relief under the Large company (also known as the RDEC) R&D scheme. The Budget made no mention of any changes to the tax benefit under the Small or Medium-sized Enterprises (SME) R&D scheme.  

The net cash tax benefit of the proposed increase is £10.53 for every £100 of R&D spend, which is only £0.81 (for every £100 of R&D spend) more than under the current regime. The improvement is disappointingly low and still compares poorly to the R&D tax benefits for companies claiming under the SME R&D scheme. These are currently 43.7% tax relief for profitable companies and for those companies not paying any tax, there is an option to cash-in R&D tax losses at up to £33.35, reclaimable from HMRC, for every £100 of R&D spend.

Given the fact that HMRC’s latest R&D statistics (issued in October 2019) indicate that so far in 2017-18 only 6,550 companies have claimed R&D tax credits under the Large company scheme, compared to 42,075 companies claiming under the SME R&D scheme, the net impact of the proposed change is likely to be of limited value and only to a very small number of companies.

Overall the changes could be interpreted as political spin rather than an attempt to provide financial support to companies investing in innovation. Given that following Brexit, the UK is no longer tethered to EU legislation, there is argument that the UK government could have grasped the opportunity and made changes to the R&D tax credit scheme that is more beneficial to innovative companies.

How we can help

For companies not sure if they can benefit from R&D tax benefits, it is important to seek professional advice to see if you are eligible for a claim. Contact Crowe’s Innovation Taxes team for clear pragmatic advice about R&D tax benefits and what impact these could have on your company or visit our dedicated R&D page.

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Caroline Hunt
Caroline Hunt
Director, Corporate Tax
London