The Chancellor’s Budget unveiled a further consultation on UK tax reliefs for R&D.
There have been a number of consultations on the R&D tax incentives recently; responses to the most recent one, concerning a potential reframing of expenditure qualifying for these tax incentives, were also published today. These have effectively been picked up in the further consultation announced today.
The consultation announced today is, however, more significant. It effectively signals a potential ‘root and branch’ rethink of the UK’s support for R&D through the corporate tax regime. Key points that it will cover include:
- definitions, eligibility and scope of the reliefs;
- how well the reliefs are operating and whether this could be improved; and
- targeting of the reliefs to maximise the value of taxpayers’ support.
In particular, the consultation will address:
- Whether the two existing schemes of R&D tax incentives (the ‘SME’ scheme and the R&D expenditure credits scheme) should be consolidated into one scheme;
- Whether the R&D schemes should continue to be administered through the corporation tax self-assessment system, or instead be subject to a greater degree of assurance and scrutiny at the point that the claim is made;
- The role and responsibilities of agents and advisers (including their fee structures) and HMRC in the claims process;
- Whether the coverage and disbursement of the tax incentives is adequate or requires some revision.
It is likely that this wide-ranging consultation is borne out of a number of factors. The advent of Brexit potentially opens up the possibility of some rationalisation and simplification of aspects of the scheme that had previously evolved in the context of EU state aid rules. There has, however, also been increasing concern recently regarding potential abuse of the incentives by some advisers, and suggestions that the R&D tax incentives should be better targeted and scrutinised.
In the context of the wider Budget tax measures, it is not surprising that the Government is keen to ensure that its investment in innovation via R&D tax incentives represents genuine value for money for UK taxpayers. An overhaul of these incentives, and an increased effort to ensure that they are appropriately targeted and that claims are genuine, is a likely outcome from this exercise. Many might consider that it is probably long overdue.