Research & Development - Further Changes
The Government is proposing changes to research and development tax relief, including an increase in the total relief available to SMEs to 225%. These changes will take effect from 1 April 2012, if they are not already effective. In a widely welcomed development, the Chancellor announced in his Autumn Statement that an 'above the line' credit for R&D would be introduced from April 2013 and a consultation on the detailed proposals will be launched at Budget 2012.
The proposed changes to R&D tax relief follow a period of consultation which began in November 2010. The majority of changes will only apply to SMEs but changes are also being made which will affect large companies. The changes are set out below with an update on other proposals from the June 2011 consultation.
Changes applying to SMEs only
- the rate of additional deduction will be increased from 100% to 125%, resulting in a total deduction of 225%;
- the rate of payable credit will be reduced from 12.5% to 11% and vaccine research relief will be withdrawn. These changes are necessary in order to make the above increase in deduction whilst staying within state aid limits;
- the amount of payable R&D tax credit will no longer be limited to the amount of a company's PAYE / NIC liability; and
- the definition of when a company is a "going concern" will be amended to make it clear that companies which are in administration or liquidation are excluded from the relief.
Changes applying to both SMEs and large companies
- the requirement for a minimum annual spend of £10,000 will be removed; and
- the scope of the definition of "externally provided worker" will be widened to provide for the situation where additional parties are involved in providing workers.
All changes will take effect from 1 April 2012, except for the withdrawal of vaccine research relief which took effect from 1 April 2011. State aid approval for the proposals has already been obtained.
The draft legislation is open for consultation until 10 February 2012. If you would like to discuss how the proposals may affect you, please let us know.
'Above the line' credit
The Chancellor announced in his Autumn Statement that an 'above the line' credit for R&D would be introduced, following strong support in response to both of the consultations on R&D tax relief. This will be introduced from April 2013 and a consultation on the design of the proposals will be launched at Budget 2012, but the Government has already confirmed that relief for SMEs will not be reduced as a result of the proposed changes.
R&D tax relief for sub-contractors
In relation to tax relief for R&D for sub-contractors, the Government is continuing to examine the options but, as a result of the issues raised with the proposals in the June 2011 consultation, no changes have been proposed at this stage.
Click the links below for more information on R&D tax relief
The draft legislation and accompanying notes in relation to R&D tax relief
Our analysis of the June 2011 consultation documents on both the Patent Box and R&D tax relief
Lawyers Nikol Davies, Michelle Williamson, Peter Jackson, Robert Young
