R&D Tax Relief - 2020 Budget Update

In our latest 2020 Budget Update, we'll take a look at the new rules around R&D tax relief. This is potentially a great way to reduce your tax burden.

Last week our 2020 budget update took a look at the headline talking points:

• Increased public spending
• Emergency coronavirus slush fund
• Entrepreneur's Relief capped
• VAT abolished on digital books

Today we'll look at a change to the R&D tax relief rules. If you want to get into the fine detail, check out the HMRC page.

What Is R&D Relief Expenditure Credit (RDEC)?

According to the HMRC wording, RDEC is a:

Tax relief for large companies and some small and medium-sized enterprises that carry out qualifying Research and Development.

It was introduced in April 2013 and was originally set at 10%. After steady increases, the 2020 budget has set the rate at 13% (up 1%). Accounting Web explains that:

The RDEC is an ‘above the line’ taxable credit, so the benefit of the rate is currently 9.72% of qualifying expenditure. With the combination of the corporation tax rate being held at 19% and the RDEC rate rising to 13%, the benefit of this relief will rise to 10.53%.

How Does It Work?

RDEC is primarily for large companies. Smaller companies would typically claim the dedicated SME R&D relief. However, even SMEs can claim RDEC if the activities are either:

• Subsidised expenditure
• Expenditure on R&D subcontracted to them by a large company
• Capped R&D expenditure

If possible, we'd recommend applying for the SME relief as the terms are more generous.

Any Other Business

The chancellor decided not to make a firm decision on reinstating the PAYE/NIC cap for SME relief. This has been rumbling on for eight years now, but small business will have to wait another year before a decision is made.

There is also no decision as yet on whether the cost of acquiring data (for R&D projects) can be considered "eligible expenditure". At the moment, only "software or consumable items" can be offset. In a digital, "big data" world, this definition seems outdated.

If you'd like to discuss how you can use these allowances to reduce your tax liabilities, please get in touch.