In March 2021, HMRC published a consultation on the scope of 'R&D Tax Reliefs', this reviews the nature of private-sector R&D investment in the UK, how that is supported or otherwise impacted by the R&D relief schemes, and where changes may be appropriate.
Following their Consultation into the scope of qualifying expenditure for R&D tax credits, HMRC have issued a more general consultation to explore further with stakeholders the nature of private-sector R&D investment in the UK, how that is supported or otherwise impacted by the R&D relief schemes and where changes may be appropriate.
The scope of the consultation is as follows:
- How the two existing R&D relief schemes support R&D, how they operate and how they interact with modern R&D practically.
- Whether the schemes should be modified to keep the UK internationally competitive.
- Whether the scope of the R&D regime is fit for purpose.
- Whether the current rates of relief remain appropriate.
The consultation runs until 2 June 2021.
Summary of questions:
- Do you consider your company to be a research-intensive firm? How does your business benefit from the R&D reliefs (e.g. cash flow, reduced tax liability)? If your company is an SME that claims under both the SME tax relief and R&D Expenditure Credit (RDEC), what is your experience of using each scheme and how do they compare?
- Is there a case for consolidating the two schemes into one? What do you value about the design of the current schemes that may be lost if they were unified?
- What do you think explains the difference in additionality between the two schemes? How could the schemes be improved to incentivise the R&D your business does or might consider doing? Can you give evidence to support your suggestions?
- To what extent do the rates of relief available to you impact your investment decisions and/or your choice of location? Is the balance of relief between the two schemes appropriate? Is there any evidence of significant deadweight where investment decisions would proceed without relief?
- Would a departure from the ordinary Corporate Tax self-assessment system be justified? Should more information and assurance be required from companies at the point of claiming? Should a company providing more information upfront be treated differently?
- When did you first claim, and what prompted you to do so? Do you use an agent? If so, why? What is your experience of how agents’ fees are structured? How could the expertise and specialist knowledge of agents assisting with R&D claims be improved?
- How can the responsibilities of HMRC, agents and the company be better reflected in the claims?
- What other changes might help claims to be dealt with more smoothly, while ensuring better compliance? Is there a way HMRC and advisers can work more effectively to improve the quality of external advice available to companies? If you claim R&D tax reliefs in other countries, how does the claim process differ and what are your views on this?
- Is there evidence to suggest areas of activity other than those currently covered by the R&D definition drive positive externalities which should be recognised by the tax system?
- Do you think R&D tax reliefs could better incentivise R&D with specific social value, for example developing green technology? Could R&D tax reliefs be used to disincentivise R&D in certain fields?
- What is your experience of conducting R&D in different regions across the UK? How do R&D tax reliefs benefit these activities, and how could the offer be improved to better support these activities?
- Are there any other areas of qualifying expenditure that should be included within the reliefs? How would this influence your investment decisions?
- What proportion of your R&D expenditure is treated as capital for the purposes of corporation tax? What would be the impact on your R&D activities of increased relief for capital expenditure?
- Do you currently claim RDAs? If not, why not? What do you like and/or dislike about RDAs?
- How much of the activity in respect of which you claim R&D in the UK is undertaken outside the company, and how much of that is not undertaken in the UK? What are the benefits and drawbacks of subcontracting, whether overseas or domestically? What are your commercial/other reasons for carrying out work overseas rather than in the UK?
- How could the government distinguish between work that needs to take place abroad and which benefits the UK, and that which doesn’t?
- How can we identify the supporting activities which are most valuable for R&D, while providing a clear boundary to assist companies in claiming and HMRC in administering?
Government has set a target to raise total investment in research and development to 2.4% of UK GDP by 2027 and argues that R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation.
Responses should be sent by email to:
Useful guides on this topic
Research & Development Tax Reliefs: At a glance
What's Research and Development (R&D) relief? How to claim R&D relief? How does small company R&D relief work? Can individuals claim R&D relief?
Research & Development Tax Relief: Overview
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?
External link
HMRC consultation: R&D Tax Reliefs
If you like our content come and join us.
Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.
Register with us now to receive our receive our FREE SME Topical Tax Update & newletter