These days, it doesn’t feel like a proper fiscal event without an announcement around R&D relief!
Much of this is predicated on the benefit that the Government believes this relief brings to the growth of the economy, while balancing the complexity of having multiple schemes in place and an undercurrent of belief that the level of avoidance and potential fraud in this area is increasing.
Addressing the complexity issue, it was announced that following consultation, the current RDEC and R&D SME schemes will be merged into one single scheme for accounting periods commencing on or after 1 April 2024.
What does this mean in reality? Well, the result will be an RDEC ‘above the line credit’ scheme with a few of the best bits of the SME scheme thrown in for good measure.
Amongst the things retained form the SME scheme are the ability to claim for subcontracted costs and the more generous PAYE and NI contributions cap; those lost are the rules around qualifying bodies and subsidised expenditure.
It’s still good to be small (or medium)
The Spring Budget 2023 announced provisions for enhanced support for R&D intensive SMEs, allowing for them to claim a higher payable credit rate when loss making, and these will remain even with the merger of the schemes.
These provisions originally set the ‘intensity threshold’ where the qualifying R&D expenditure amounted to 40% of more of the SME’s total expenditure. However, from 1 April 2024, this threshold will be reduced to 30%.
In addition, a new grace period will apply from that same time, meaning that if a company fails to meet the threshold in one year, they will be able to continue to make a claim under these provisions if they met the threshold and successfully made a claim in the preceding year. This is targeted to cover cases where exceptional items in one year would otherwise prevent a claim or allow companies which remain very close to the limits to benefit from these provisions if they fail them in one year.
Not so simple though
With redesign comes more focus, and the stated intention of the Government to clamp down on “unacceptably high levels of non-compliance” where this is needed.
We will have to await the publication of the promised action plan to understand what this will actually mean, but all we can hope for at this stage is that a single simplified set of rules is not made excessively complex by a raft of anti-avoidance measures.
One of HMRC’s concerns is where an R&D repayment goes to anyone other than the claimant, and as such they are excluding any assignments of R&D tax credit payments with immediate effect and nominations of payable R&D tax credits to third parties will no long be possible for any claims made on or after 1 April 2024.
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