We live in interesting times with both Brexit and now the Coronavirus creating uncertainty for business.
But ignoring those broad issues and purely looking at the R&D related measures in the 2020 Budget the key highlights are:
- Continued commitment to R&D investment and the two R&D schemes for Large Companies and SMEs. This is viewed as key part of Government strategy. This lines up with the Conservative manifesto.
- RDEC rates for Large Company R&D claims have been increased from 12% to 13% from 1st April 2020. This was in the Conservative manifesto.
- Consultation on R&D qualifying costs to potentially include the cost of buying data and the cost of cloud computing. These have been costs many in the software industry believe should be claimable but at present are not as they are not included in the CTA2009 as being claimable. Again, this was in the Conservative manifesto.
- The proposed anti abuse cap on payable SME R&D Tax Credits of 3 times a company PAYE and NIC contributions will not be introduced from 1st April 2020 as announced in the 2018 Budget but is delayed until 1st April 2021. This is because due to events, like the election and Brexit, the consultation has not been completed. We contributed to the consultation and hope the proposed measure will be adapted to avoid harming small genuine claimants.
- We have also been informed through the HMRC R&D Committee that changes will be made to externally provided worker legislation as part of the Budget Corporation Tax Act to amend Part 13 of CTA 2009. Externally provided workers are a catchy area of the legislation for the uninformed & it will be interesting to see the exact changes proposed. These changes are not found in the budget text below.
In terms of R&D claims the budget contained no big surprises. This is welcome. It is also a positive that that the Conservatives have treated R&D tax incentives in the way they outlined in their manifesto. The delay of the cap makes sense as it would be impossible to inform everyone effected and have them plan accordingly even if the consultation was completed today with just about three weeks’ notice to implementation.
The conservative record of supporting the R&D schemes continues and as someone who has seen how this has benefited hundreds of businesses, I commend them for this.
Full budget details can be found here https://www.gov.uk/government/publications/budget-2020-documents/budget-2020
2 thoughts on “R&D in the 2020 Budget”
It has to be remembered that the vast majority of the R&D relief was introduced, and increased, by Gordon Brown & Alistair Darling. The only increase the Conservatives made for a long time was to increase SME relief from 125 to 130%. Credit where it’s due.
There was even-briefly, until businesses presumably lobbied them-an indication in the 2010 Conservative Manifesto, that they would do away with R&D relief to pay for IHT/CG cuts/abolition.
Now I know SME relief is at it’s maximum, under EU State Aid regs, but I strongly believe any spend on RDEC would have been better spent on introducing additional qualifying categories, as above.
Why? SME’s create jobs, (which = more PAYE/NIC, VAT etc paid) Large Companies shed them in large numbers. Some SME’s claim, at least partly, under RDEC, because of grants, but that could be surmounted, with a bit of imagination. Initial estimates of the cost to the Treasury of RDEC were £200 million. By year 2 it was already double that. Much better value for money to target extra relief at SME’s. This is purely my personal opinion.
Thanks Malcolm. R&D claims have generally been well supported by both main parties. The Dyson Report was fairly key to the conservatives continuing a labour policy.
By mentioning the conservative manifesto I was not trying to say anything other than that they did what they said they were going to do. Their were no surprises in that respect. This is not always the case.
The interesting question will be “what does the Covid-19 emergency do the the positions and policies we would expect the main parties to hold based on the election maifestos & how will this impact companies of all sizes and the two R&D schemes?” The world may become very different. Taxes may well go up and tax reliefs may be cut by parties of all types.
The debate around supporting large companies is interesting. The problem with not having a large company scheme could be argued to be international competitiveness. R&D schemes can influence global investment decisions. The other issue is that a major problem with the UK economy could be viewed as not enough SMEs becoming Large Companies, and completely losing a tax incentive by becoming large could not be viewed as helpful. I have seen a number of interesting tech clients being taken over by Nasdaq listed multinationals. This hurts the UK in a number of ways. Policy needs to encourage SMEs to transition into large companies. I am not sure supporting one or the other should be a trade off.