Autumn Budget 2021: The impact on R&D tax credits and innovative UK businesses
It’s that time of the year again where the Chancellor of the exchequer, Rishi Sunak, reveals the Government’s tax, finance and spending plans for the forthcoming year, in the form of the Autumn Budget. A highly anticipated event in the business calendar, the budget announcement has always been engulfed in speculation, none more so that this year’s due to the fact that:
a) it’s the second of the year, and
b) we are finally seeing an upturn in the UK’s financial stability, having been at its lowest for a number of years.
Domestic spending for R&D activities
Once again, without being too specific, Rishi Sunak touched on the idea of the UK becoming more innovatively, technologically and scientifically competitive in comparison to our OECD counterparts.
Noting that our developmental and private sector investment in research and development levels are not where they should be, the Chancellor addressed two main areas the Government will initially look to improve in an attempt to encourage domestic spending on research and development.
Additional cost category
Firstly, the government will expand qualifying expenditure for R&D tax credits to include data and cloud computing costs.
This is great for innovative UK companies. This addition captures the evolvement in research and development activities since the relief’s inception and will be a welcomed change.
Refocus on UK innovation
Secondly, an issue identified with the current R&D tax credit relief system is that whilst UK companies claimed tax relief on £47.5 billion of R&D expenditure in 2019, the ONS estimates that businesses only carried out £25.9 billion of privately-financed R&D within the UK, with the current system allowing companies to claim for R&D activities taking place overseas. From April 2023, the government will look to refocus the reliefs towards innovation taking place within in the UK.
With the Government increasing its own spending on research and development to £22 billion, the introduction of the help to grow SME program and measures put in place to unlock institutional capital, we believe that now is the time to invest in R&D.
We expect to see further adjustments to the R&D tax credit system following the consultation review later in the Autumn. We anticipate further measures to tackle abuse of and improve compliance with the R&D tax reliefs to be introduced.
Managing Director, LimestoneGrey
LimestoneGrey is a regulated R&D tax credit consultancy however, the market is flooded with unqualified, unregulated R&D tax credit advisors and this is not good news for UK businesses. For the integrity of the relief, the tightening up of the rules and the crackdown on relief abuse is welcomed.
The Chancellor’s announcement of the additional expenditure category is a welcomed change. R&D tax credit activities have evolved since the the inception of R&D tax credits and it is only right and fair that the relief evolves with it.
We eagerly await further details on the second measure and the outcomes of the wider R&D tax credit consultation.