R&D Tax Reliefs Review - Single scheme consultation

As such, the Chancellor announced at Autumn Statement 2022 that reforms would be made to the R&D tax reliefs in order to ensure that taxpayers’ money was being spent as effectively as possible, with a view towards introducing a simplified single relief based on the Research & Development Expenditure Credit (RDEC) scheme.

In order to facilitate this process, HM Treasury has launched a consultation inviting views on potential designs for this new scheme. The aim is not only to improve competitiveness within the RDEC scheme, but also create a simpler system for businesses applying for financial support related to their research and development activities.

This consultation provides an opportunity for stakeholders from across the business community, including SME's and larger organisations, as well as research institutions and other members of civil society, to express their views on how best these reforms could be implemented. It is hoped that by considering a wide range of perspectives throughout this process any potential new single R&D tax relief scheme can provide maximum benefit both economically and socially in terms of encouraging further investment in R&D across all sectors within the UK.

HM Treasury will be seeking extensive feedback throughout this consultation period in order to understand fully how different organisations utilise R&D tax reliefs today, what impact any changes may have on them specifically and what improvements may need to be made going forward. A full review of all evidence gathered will then take place in order to inform future policy decisions regarding any potential single RDEC-based R&D tax relief scheme. It is expected that any new system will incentivise greater investment into research and development activities amongst businesses operating in all industries within the United Kingdom.

According to the report

Within the R&D reliefs consultation 2021, the Government consulted on the balance of generosity between the two schemes and whether to merge them.

In the consultation views differed on whether one scheme was more complex than the other and on whether to combine the schemes.

Those in favour of unifying the two schemes gave several possible advantages:

• The UK is unusual in having two R&D tax relief schemes and unifying
  would help with overall tax simplification
• It would make the credit more visible for decision-makers if all
  companies received relief as an “above-the-line credit” (as is the case
  for RDEC)
• Other respondents also pointed towards the fact that SMEs that
  make small profits cannot currently benefit from carried-forward
  losses from previous years – which could be helped by them getting
  an above-the-line credit.

Those that were against unifying were often concerned that this would involve equalisation of the rates of relief. Other respondents felt that the disruption that would be caused by unifying the two schemes would not be worth the effort.

Consultation process

Once the Government has decided whether or not to merge schemes and the potential design of the single scheme, a final rate will be decided within the cost envelope of the R&D reliefs and announced at a future fiscal event. This will not be consulted on. It is currently the Government’s intention that, if implemented, the new scheme will be in place for expenditure incurred from 1 April 2024.

Next steps:

The consultation will run from 13 January to 13 March 2023.

Please send comments or submissions to: RDTaxReliefs@hmtreasury.gov.uk by 13 March 2023.

HM Treasury are unable to respond to letters sent in the post at the moment. Please use the email address provided above to ensure your response is taken into account. When responding, please say if you are making a representation on behalf of a business, individual or representative body. In the case of representative bodies, please provide information on the number and nature of people you represent.

This consultation is being run in accordance with the government’s Consultation Principles.

The Consultation Principles are available on the Cabinet Office website:
http://www.cabinetoffice.gov.uk/resource-library/consultationprinciples-guidance 

For more information on this consultation visit the following link: https://www.gov.uk/government/consultations/rd-tax-reliefs-review-consultation-on-a-single-scheme 

Any questions, feel free to contact us via our contact page