Review of R&D tax credits: If it isn’t broke, don’t fix it

Wed 08 Mar 2017

The availability of R&D tax reliefs has proved a great incentive to companies to carry out R&D and the Government is committed to keeping these reliefs in place.

The relief has been gradually improved over recent years, with tax deductions of up to 230% being available on qualifying spend.

But life is like football.  Just as a Premiership winning club wishes to keep winning, the Government wants to ensure that the current suite of R&D tax reliefs remains fit for purpose.  It therefore carried out a review of the R&D tax regime, which found that the regime is “an effective and internationally competitive element of the government’s support for innovation”.

Nevertheless, to enhance the regime the Government is proposing to introduce administrative changes aimed at simplifying claims and increasing certainty.  No detail is given as to what is meant by an increase in “certainty” but one can only imagine that the idea is that if a company submits a claim for R&D relief, the likelihood of the claim being accepted is greater.  Likewise, we have no detail at this time of how the claims will be simplified.

The Government also wishes in improve awareness of R&D tax credits amongst SMEs.  One might expect that any tax advisor worth their salt would make a claim for R&D tax credits when preparing a company’s corporation tax returns.  But such an assumption overlooks two things:

1. Surprisingly, not all advisers include R&D claims – perhaps on the grounds that they are unclear on what qualifies and what does not.
2. Claims are submitted in the accounting period following that in which the expenditure has been incurred.  One must therefore ask oneself whether companies are factoring in the cashflow benefits/savings arising R&D tax credits when evaluating whether or not to embark on an R&D project.

But to complete the analogy, once the review has been completed, let’s just hope that Philip Hammond doesn’t leave the front bench in the same way as Claudio Ranieri!

By Andrew.Ross@mazars.co.uk