The government has launched a consultation paper to look at reforming the processes around the tax relief companies can claim for Research and Development (R&D).
In his autumn statement, the Chancellor announced changes to the current schemes which will come into practice on 1 April of this year. For small and medium-sized enterprises (SMEs), this means a reduction in the relief available whereas for larger companies, who fall under the Research and Development Enhanced Credit (RDEC) scheme, the government announced an increase in the available tax relief. The Chancellor reiterated the government’s commitment to boosting R&D activity to boost the UK economy whilst reducing the impact of abusive and fraudulent claims in the SME market.
The changes, unsurprisingly, invited much criticism from industry leaders as SMEs make up the majority of R&D enterprises in the UK alongside a criticism regarding the complicated processes involved, which could also be said to be unfavourable towards SMEs due to the expertise needed to put in such a claim.
As a result, the government is asking for input from industry leaders as to whether a simpler one process system could be put in place for both SMEs and larger corporations as opposed to the two-system process used now. A scheme modelled on the current RDEC for SMEs would also give the decision makers in smaller companies clearer information, which will help them set budgets for R&D. The UK is unusual in having two schemes in place for tax relief for R&D, which also goes against the government’s commitment to simplifying taxation across the board. The consultation will run until 13 March 2023 and the government has stated they would like the input from a wide range of sources including companies, individuals, professional bodies and particularly from those from R&D intensive businesses.
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