The 2017 Autumn Budget is the second budget to be released this year, it brings great news for large companies claiming research and development (R&D) tax credits. Below are a summary and review of what the Chancellor said and what it means for UK Limited businesses.
The Chancellor announced in the budget that:
- The R&D Expenditure Credits (RDEC) rate is being increased from 11% to 12%.
- Government spending on R&D will be further increased by £2.3 billion in 2021-22, resulting in a total spend on R&D of £12.5 billion.
R&D Expenditure Credits (RDEC) Rate Increased to 12%
A paramount change is the government’s announcement of the increase to the RDEC rate from 11% to 12%. This percentage increase, starting from the 1 January 2018, is great news for both large companies and SMEs who use the RDEC R&D tax credit scheme. The government has found that the R&D tax credits have a positive impact on the R&D investment and innovation in the UK, meaning that the increase of the RDEC rate should positively benefit the UK economy.
This is the second time the R&D Expenditure Credits (RDEC) rate has been increased since it has been introduced in April 2013, originally introduced at 10%. In addition to this increased rate, large companies have already benefitted from a 19% corporation tax rate that came into effect on 1 April 2017.
Investment in research and development (R&D)
The new changes to the research and development tax credits are part of the government’s strategy to support productivity, innovation and R&D investments across the UK. The additional £2.3 billion investment in R&D will help encourage UK Limited businesses to invest while bringing the UK research and developing spending in line with the worlds other prosperous nations. The government spending on R&D with the additional £2.3 billion in 2021-2022 will take the total spend on R&D in that year to £12.5 billion.
The government says the figure is set to increase to 2.4 percent of GDP on projects by 2027 – with most of that figure provided by private sector spending – the current average Organisation for Economic Co-operation and Development level. Additionally, the Campaign for Science and Engineering estimated the commitment of £2.3bn extra funding in 2021/22 will bring the total percentage of public R&D to 0.65 percent of GDP.
Why Did The Rate Not Increase For SMEs?
As mentioned the Chancellor’s announcement is great news for companies that are using the RDEC R&D tax credit scheme. However, we feel like the SME scheme is being forgotten.
Based on the HMRC’s most recent statistic, 83% of all R&D tax credit claims are made using the SME scheme, even with such a high number of companies claiming, it only results in half the cost of support claimed. The reason for this is that the average amount of qualifying R&D expenditure for a large company is far higher, even with the SME rate being higher (up to 33%). If the SME rate would have been increased, it would have positively benefitted a greater number of businesses.
How can SHENCOH help with R&D tax?
Take the Eligibility Quiz to find out if you have qualifying R&D expenditure.
ShenCoh Ltd is an R&D tax specialist company, with methodology and practices recognised by HMRC. We pride ourselves on not taking more than 3 hours of your time from start to completion, on a no win no fee basis. If you are interested in learning more or need help putting a claim in, please fill in the contact form here or give us a call on 0161 757 3657.