Is the scope for R&D relief set to expand?

The Spring budget 2020 was big for innovation. Not only did the Chancellor announce that the Government’s Research and Development (R&D) spending would be increased to £22bn and an increase in the rates for Research and Development Expenditure Credits (RDEC), but also the opening of a consultation on the scope of R&D tax relief.

All of this is a huge step forward for R&D in the UK, and the benefits will be felt far and wide, whether it’s in medical advancements such as the development of a COVID19 vaccine, or working towards a more sustainable and green future.

The consultation on the scope of relief opened in late July, meaning that we could see even more R&D costs qualifying for relief in the near future.

New scope for relief?

The consultation, which is open until Mid-October, will review whether there is scope to include the costs incurred on collection generation, processing and analysis of datasets, and cloud computing costs within the remit of qualifying expenditure, and where such activity is used in R&D processes.

However, the consultation won’t be taking other research grants or the suggested R&D SME tax credit PAYE/NICs cap into consideration (the latter of which is the subject of a different consultation).

The last review of took place nearly a decade ago, and a lot has changed since November 2010, so this could potentially drastically modernise the R&D process system and increase claims for innovative businesses across the UK.

How does R&D relief work?

R&D relief is one of the most valuable incentives on offer to both SMEs and Large companies and in recent years we’ve seen innovative ideas and concepts come to life through the help of R&D claims.

The systems is split into two forms of relief. Research and Development Expenditure Credits (RDEC), which is currently a tax credit of 13% of qualifying R&D costs. And R&D tax relief for SMEs - an additional 130% deduction of qualifying costs from a business’s annual profits, or if the company is loss-making, a tax credit of 14.5% of the lower of surrenderable loss and the enhanced R&D expenditure.

If you’re creating a new product/service, or advancing an existing one, the chances are that you may qualify for relief, even if the end product is unsuccessful.

What else can we expect from the consultation?

Widening the scope for eligible expenditure will inevitably have a big impact on the Exchequer. So, the consultation will also be reviewing indirect activities which could be limited or completely excluded from the relief.

Where to go from here…

With the consultation open until October, we are unlikely to be seeing any major changes coming into play until the end of the year at least.

In the meantime, we’re here to support you every step of the way when it comes to your R&D claim. Get in touch today, to see how we can help.