The HM Treasury has initiated an eight-week discussion with regards to the suggestion of a single R&D system. This is the newest reform to be proposed by the Government. 

One may be wondering how we got to this juncture, and why the Government is committed to revising the R&D tax credits.

Since the financial crisis of the past, the UK has been known to depend upon innovation to stimulate productivity growth, yet this has waned in recent times due to the COVID-19 pandemic. To foster further growth, businesses must invest more in research and development and the Government understands the value of R&D tax credits in helping organisations to do so. Even so, the Government wants to refine the relief in certain areas.

1. Make sure the relief is fit for purpose

Since the year 2000, when R&D tax credits were introduced, there have been massive advancements in research and development methods.

2. Cutting down on deceitful behavior and misuse

From 2021 to 2022, estimates suggest that the amount of errors and fraudulent activity connected with Corporation Tax R&D reliefs is approximately £469 million, with the Small and Medium Enterprise (SME) scheme accounting for £430 million and the Research and Development Expenditure Credit (RDEC) scheme for £39 million. This is seen in both legitimate businesses and illegal operations.

3. A Good Deal

Getting a good deal or value for money for the taxpayer.

The government is committed to providing R&D tax credits in a manner that is economically manageable for the taxpayer.

In comparison with other countries, the UK has one of the most comprehensive R&D tax incentives available, yet the amount of R&D that UK companies invest in is lower than in other nations.

For a while, the PAYE limit on SME claims has been in place, and come April 2023, additional alterations are being implemented to diminish fraud and ensure the R &D tax relief is suited to the present day.

The latest shift has harmonized the generosities of the two research and development tax credits, with the government claiming that this will be a more cost-effective solution for the public. The UK is a rare case in running two separate schemes, and this adjustment has provided the possibility of consolidating the two refunds, prompting speculation that switching to a unified system would result in streamlining for firms.

What topics will be discussed in the upcoming consultation, and what will be the implications of such a consultation on future R &D tax credit reforms?

The consultation has proposed a single scheme based on the RDEC, primarily designed for companies of a larger size. This scheme is to be created with the intention of implementing responses from past reform consultations.

Gathering opinions from companies involved in research and development, as well as those representing them, the proposed design of the scheme is being explored in regards to: