The progress made in R&D tax credit legislation in the 2010s
Since the implementation of R&D Tax Credits for small and large businesses, designed to encourage in-house innovation by providing tax relief for funds invested in research and development, the guidelines have changed somewhat through the years. That’s why it’s more important than ever for business’ decision-makers to stay up-to-date with R&D Tax Credit legislation and what constitutes qualifying R&D.
As we enter a new decade, let’s take a brief look back at how R&D tax credit legislation has evolved in the last ten years:
- R&D tax relief available to small and medium-sized enterprises (SMEs) was increased to 100% from 75%. The payable credit was also cut from 12.5% to 11%. Overall, this provided a boost to profit-making organisations.
- Eligibility of materials costs relating to the production of prototypes or trials clarified by HMRC.
- R&D SME relief rate rises to 125% from 100%.
- Minimum £10,000 spend for an eligible R&D tax relief claim removed entirely.
- NIC and PAYE liabilities cap removed from the SME relief scheme.
- Introduction of the Research and Development Expenditure Credits (RDEC) in place of the former large company scheme for R&D tax relief.
- The SME payable credit rate is increased significantly from 11% to 14.5%, with loss-making qualifying firms seeing a boost to their claim benefit to 32.63%.
- UK government implements more stringent legislation on which ‘consumable’ materials and prototypes are eligible for R&D tax credits. Firms can no longer claim relief on materials that customers eventually buy from them.
- UK government raises the rate of relief for the RDEC scheme to 11%.
- SMEs’ R&D expenditure rate is increased from 125% to 130%, increasing the benefit rate for all claims.
- The large company super deduction scheme ceases to run in parallel with the RDEC scheme, with the former abolished in its entirety.
- The main rate of UK corporation tax cut from 20% to 19% in April 2017, eliminating the claim benefit that profit-making SMEs used to receive from their R&D tax relief claims.
- UK government increases the main RDEC rate of relief for larger firms to 12% – the second incremental rise for the RDEC benefit rate.
- HMRC unveils new support service to help SMEs online with their R&D tax credit claims.
- In a bid to improve the calibre of claims for R&D tax relief, HMRC makes CT600 and computation forms mandatory for each submission.
What’s in-store for 2020?
From 1st April 2020, the UK government plans to implement a new cap for PAYE and NIC towards the SME payable credit.
These measures are designed to limit abuse of the SME payable R&D tax relief. The cap is designed to work in the same way as the one that was culled from the SME relief scheme in 2012.
Accounting periods commencing on or beyond 1st April 2020 will see a maximum payable R&D tax credit that an SME can claim for. The benchmark will be set at 300% of their overall liabilities for PAYE and NIC during these financial periods.