R&D Tax Relief Reform consultation

• R&D tax relief reform set to simplify the system and help grow the economy
  Clearer information about how much relief business will receive to be offered up front, helping them budget for R&D
• Follows £20 billion investment in R&D from government at Autumn Statement and the Chancellor’s pledge to understand how to provide further support for R&D intensive SMEs

The Government has launched a consultation to simplify the UK’s R&D tax relief system, drive innovation and grow the economy.

The 8-week consultation, which runs from 13 January to 13 March 2023, sets out proposals on how a single scheme could be designed and implemented. This would replace the two R&D tax relief schemes currently in place – the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief.

A scheme modelled on the current RDEC for SMEs would also give decision makers in smaller companies clearer information, which will help them set budgets for R&D. In contrast, for those claiming SME tax relief in the current setup, the exact amount of money their firm will receive can only be known with certainty at the end of accounting period.

This is part of the government’s ongoing R&D tax reliefs review, and follows changes announced at Autumn Statement 2022 where the generosities of the two R&D tax schemes were broadly aligned, with the Chancellor pledging to work with industry to understand how to provide further support for R&D intensive SMEs.

The UK’s R&D tax reliefs have an important role to play in encouraging more businesses to invest in R&D, helping them to grow and create the technologies, products and services which reshape lives and livelihoods.

Government spending on R&D plays a crucial role in stimulating private sector investment which is why it is increasing investment to £20 billion a year by 2024-25 – the largest ever increase in a Spending Review period.

Victoria Atkins MP, Financial Secretary to the Treasury, said: “We are focussed on growing the economy – with thriving businesses bringing more jobs, higher pay and more tax revenue to fund our precious public services.

“Getting R&D tax relief right and fit for the future sits at the heart of making sure the UK remains a competitive location for cutting edge research – helping new firms grow.

“I welcome views on the option to simplify the scheme, especially from those who have experience of the existing tax reliefs.”

The UK is unusual in having two schemes and moving to a single measure would simplify the R&D tax system in line with the government’s overall plans for tax simplification.

The government would like to hear from a wide range of sources including individuals, companies, representative and professional bodies, and especially invites comments from research and development intensive businesses and those representing them.

The government recognises the reform to the rates creates challenges for some R&D intensive SMEs and those in the life sciences sector in particular and believes there is merit to the case for further support. Any further changes will be announced in the usual way, at a future fiscal event.

If implemented, the new scheme is expected to be in place from 1 April 2024.