Budget 2020 – Only a 1% increase on R&D Credit? Why would BIG BUSINESS care? Think again – It’s an effective 8% rise

Wed 11 Mar 2020

While a single percentage point doesn’t sound like much, it’s actually an 8.3% increase over the previous 12% rate.  This is likely to prove a positive factor when large companies and groups are costing up this sort of internal investment. It should mean that more development projects get the green light here in the UK.  

It’s interesting that the SME R&D Tax Credit remains unchanged.  The main target of the increased RDEC rate is big businesses and groups being encouraged to operate in the UK.  These are the type of taxpayers who may have the flexibility to carry out their R&D anywhere they choose and the rate increase may swing more of them towards locating R&D functions and major development projects in the UK.

With respect to the recent consultation on preventing abuse of the repayable SME R&D tax credit, the Budget announced that the introduction of this measure will be deferred to April 2021.  This will provide time for further consultation on the detailed measures to ensure it is targeted on abusive behaviour.

Some of the key sectors for the UK include banking and financial services and technology.  The increased RDEC rate will be particularly helpful for those in these sectors investing in developing, for example, specialised software/IT systems.   A consultation on whether qualifying R&D tax credit costs should include investments in data and cloud computing, will also be of interest to these and other businesses.