A number of announcements were made during the 2021 budget yesterday afternoon. Below we have put together a summary of those key points that may affect a company’s R&D tax credit claim.
If you have any questions about any of the following points please get in touch with our team and one of our advisors can work with you to ensure the impact on your R&D claims is minimised.
Furlough scheme to be extended to 30 September 2021 – staff costs associated to furloughed employees are not eligible as an employee cannot undertake R&D on furlough.
New ‘Restart grants’ for hospitality, accommodation, leisure, personal care and gym businesses and the new Recovery Loan Scheme – it has not been confirmed whether this grant/loan scheme is deemed by HMRC to be state aid or not. If it is, and the grant was spent on R&D costs (e.g. used to pay R&D salaries or subcontractor costs), then these costs should be claimed under the, less favourable, RDEC scheme.
It would be advisable to keep clear records, showing how this money has been spent. If possible, it could be advantageous to use other funds to pay for R&D costs to minimise the risk of this.
Future corporation tax (CT) rates - CT will increase to 25% in 2023. Businesses with profits of £50,000 or less, will continue to be taxed at 19% and a taper above £50,000 will be introduced so that businesses with profits greater than £250,000 will be taxed at the full 25% rate.
Future R&D claims for profitable companies will be more favourable as the CT rate increases. This will only positively affect the overall tax benefit of claims of profitable companies.
Capping the amount of SME payable R&D tax credits that a business can receive in any one year at £20,000 plus three times the company’s total PAYE and NICs liability. This change will affect companies that employ few staff and claim high subcontractor/consumable/software costs. This will be coming into affect as of the 1st April 2021, so it will not affect claims with a Year End prior to this date.
The government is launching a review of R&D tax reliefs to make sure the UK remains a competitive location for cutting-edge research. Key areas of focus are changes to qualifying costs, in particular the likes of server & hosting costs, as well as machinery, which under today's legislation do not qualify for R&D tax credit relief.