Draft legislation shedding light on the proposed single scheme for R&D tax relief has been published & Jenny Tragner, Director and Head of Policy at ForrestBrown, the UK’s leading R&D tax relief consultancy, shares her insights on the key aspects of the new scheme.
“The draft legislation revealed more details of the proposed single scheme for R&D tax relief, giving greater clarity on key topics such as the treatment of subcontracted activity. However, important elements such as the rate of relief and timing of the proposed merger remain subject to further consideration and we should expect more announcements on these at future fiscal events.
“One immediate observation is that we are potentially not going to get a single scheme after all. Pressure following last year’s rate rebalancing resulted in the introduction of a specific credit rate for loss making R&D intensive SMEs. As a result of this commitment, the draft legislation retains the SME scheme for these companies, although this is likely to be a point of discussion in the ongoing consultation process.
“A key aspect of the merged scheme is how to deal with contracted out R&D. Based on responses to the consultation earlier this year, the government is proposing to broadly adopt the SME scheme approach. For many large companies, the prospect of adapting to new rules should be softened by the further broadening of the cost base for claims, hot on the heels of the introduction of data and cloud costs and increased RDEC rate.
“For SMEs, contracting out of R&D has been a particularly uncertain and at times controversial component of the incentive in recent years. The draft legislation and accompanying explanatory notes signal that the government is keen to use the merged scheme as an opportunity to achieve much needed and welcome clarity in this area.
“The previously delayed restrictions on overseas R&D are incorporated into the draft legislation, confirming the government’s intention to proceed with these changes. Companies will need to consider the impact of these to plan accordingly, although the consultation period offers another opportunity to debate additional protections for international businesses.
“Overall, the draft legislation represents a positive response to calls for reduced complexity and a step towards a renewed incentive which reconnects with the critical policy intent of R&D tax incentives. Work remains to be done on the details of the design and setting a clear timetable for implementation which allows businesses enough time to prepare.”
