The latest UK Government statistics on R&D tax credits, both in respect of the Small and Medium Enterprise (“SME”) scheme and Research and Development Expenditure Credit (“RDEC”) scheme, show a continuing trend: the number of claims, the number of claimant companies and the value of R&D expenditure continues to climb. The current expected value of R&D tax relief for 2019-20 is £7.4bn, a 19% increase from last year’s total of £6.3bn.
The statistics show that in 2019-20 the total number of claims for R&D tax credits rose to 85,900, an increase of 16% from the prior year. The increase was primarily driven by a rise in the number of SME claimants, but there was also a rise in large company RDEC claimants. As more and more businesses take advantage of these incentives, we have already seen increased scrutiny from HMRC to ensure that businesses are making robust claims and providing the right level of supporting evidence to enable HMRC to assess the R&D.
The UK R&D regimes are the most utilised R&D incentives in the world (based on the latest OECD data1). While it is great to see that so many companies in the UK are investing in R&D, it is important to make sure that the incentives are not misused and provide value for money for the Government. The current HMRC consultation focuses on ensuring the reliefs are appropriately targeted, encourage innovation but also minimise the risks of abuse of the regime. See our blog for more details on the consultation and our survey.
We expect there to be changes to the reliefs, following the consultation, which could result in both winners and losers. Eligible costs could be expanded to include cloud expenditure and data acquisition costs but these may be countered by restrictions on other eligible costs. There is also strong support for an increase to the rate of RDEC which is less competitive globally than the SME regime.
It's clear there is real support from the Government, HMRC and businesses around the importance of the R&D regimes and the part they have to play in driving R&D expenditure to 2.4% of GDP by 2027, increasing the UK’s competitiveness on the international stage.
However, with the rise in cost to the exchequer, the anticipated changes from the recent consultation and the recent increase in HMRC scrutiny it is important that businesses, and their advisors are comfortable that their claims are robust and appropriately documented.
If you would like further insight into the regime, the recent consultation or a review of your existing claims, please get in touch with your local PwC contact.
