Last week, Chancellor Rishi Sunak unveiled his latest Budget statement in the House of Commons.
From a big picture perspective, I think the best news in the budget, from a government assistance viewpoint, is that the government is committed to raising the total investment in R&D to 2.4% of UK GDP by the year 2027. While new programmes and improved incentives to existing programmes will be announced in the future, here are some new incentives that were announced in the budget:
· Effective April 2021, the new super-deduction will reduce taxes payable by 25p for every pound they invest in new equipment. The incentive is valued at £25 billion to be provided to UK companies over a two-year period.
· UK-wide Future Fund: Breakthrough; £375 million will be made available under this fund to invest in highly innovative companies such as those working in life sciences, quantum computing, or clean tech, that are aiming to raise at least £20 million of funding.
· Reforms are to be made to the immigration system to help ambitious UK businesses attract international talent.
· A new Help to Grow scheme to offer up to 130,000 companies across the UK a digital and management boost.
· £20 million will be made available to fund a UK-wide competition to develop floating offshore wind demonstrators and help support the government’s aim to generate enough electricity from offshore wind to power every home by the year 2030.
· £68 million to fund a UK-wide competition to deliver first-of-a-kind long-duration energy storage prototypes that will reduce the cost of net zero
· £4 million for a biomass feedstocks programme in the UK to identify ways to increase the production of green energy crops and forest products that can be used for energy.
· Over £1 billion in funding for a further 45 towns in England through the Towns Fund, supporting their long-term economic and social regeneration, as well as their immediate recovery from the impacts of COVID-19.
· Plans for at least £15 billion of green gilt issuance in the coming financial year, to help finance critical projects to tackle climate change and other environmental challenges, fund important infrastructure investment, and create green jobs across the UK.
· £4.8 million to support the development of a demonstration hydrogen hub in Holyhead, Anglesey.
R&D Tax Relief
In terms of R&D tax relief, a consultation will run from 3 March to 2 June 2021. The consultation will solicit input from stakeholders to improve the R&D tax relief programme in order to keep the programme competitive with other countries, as well as addressing the current state of technology development.
As an example, data and cloud computing costs are currently part of this consultation as becoming eligible R&D costs.
We at RDP will be proposing that the government address the vague nature and unintended results under contract payments and subsidies legislation, where under the SME scheme a company is precluded from claiming costs related to R&D if it receives a contract payment or subsidy.
In addition, the following draft legislation will now be put into effect through Finance Bill 2021.
Cap on Payable R&D Tax Credit
To prevent abuse under the program, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability. In terms of transitional measures, where a company has an accounting period that straddles 1 April 2021, the measure does not apply to the part of the period from 1 April, but instead, only affects the next full period starting after that date.
There will be an exception to this rule if the company meets 2 tests. A company will be exempt from this rule where 1) the employees are creating, preparing to create or actively managing intellectual property, including know-how, and 2) a company’s expenditures on work subcontracted to, or externally provided workers provided by, a related party, is less than 15% of its overall R&D expenditure. Read more here Good News for SMEs- HMRC’s New Draft Legislation for R&D Tax Credits
Overall, it is positive news for innovative companies.
If you have any questions on R&D Tax Relief and Government Grants, please do not hesitate to contact us here.