Following the consultation launched earlier this year, the Government has published draft legislation for a single merged research and development (R&D) tax relief scheme, which would replacing the two existing schemes. As currently drafted the proposed single scheme would be based on the existing R&D expenditure credit (RDEC) scheme that is aimed primarily at larger companies.
Significant features of the proposed new scheme include:
- A headline rate of credit of 20% of qualifying expenditure. This credit would itself be taxable, resulting in a net cash tax benefit of 15%, assuming that the company pays corporation tax at the main rate of 25%.
- Most subcontracted outsourced R&D costs should qualify for relief, based on 65% of the expenditure incurred.
- Relief for R&D taking place outside of the UK will be available only in very limited circumstances.
- The amount of relief available to loss-making businesses will be capped at £20,000 plus three times the company’s PAYE and NIC liability for the period.
- Loss-making “R&D intensive” SMEs would be an exception from this new scheme, instead continuing to be able to claim an additional deduction for R&D expenditure, and a payable credit for the resulting loss.
No decision has yet been made regarding whether this proposed new scheme will actually be introduced, but if it does, it could take effect as early as 1 April 2024.
If you have any questions or concerns about the proposal, your usual DSG contact will be happy to provide further advice.