Improvements to the UK’s R&D Tax Relief regime

Several improvements to the UK’s R&D Tax Relief regime were announced in yesterday’s Autumn Statement.

The first of these is a relatively minor improvement for SMEs, with the rate of enhanced deduction increasing from 225% to 230% from 1 April 2015. However, in addition to this change, measures will be introduced to make the R&D claim application process easier for smaller companies. Further details are yet to be announced but this will be a welcome change for many businesses.

A more significant increase in relief will be provided to Large Companies (and some SMEs) claiming R&D Tax Relief through the recently introduced Research and Development Expenditure Credit (‘RDEC’), which will be increased from 10% to 11% in relation to expenditure incurred from 1 April 2015. This is a very welcome change and will increase the real terms cash benefit of making a claim under the RDEC by more than 10%, to just under 9% of qualifying R&D expenditure.

The final change relates to the nature of qualifying R&D expenditure itself, and will effect both the SME and Large Company regimes. Specifically, the cost of consumable materials incorporated in products that are sold to customers will not qualify as eligible expenditure from 1 April 2015. The inclusion of these costs has been contentious for several years and, whilst their exclusion will be disappointing for companies operating in certain industries, an update to the legislation in this area will provide more certainty for taxpayers and is likely to be welcomed by some businesses.

Should you require any information or advice in relation to this area our R&D Tax Relief expert, Gillian Abramson, would be happy to assist.