Industrial Strategy 2017 and Research & Development
The recent publication of the government’s Industrial Strategy whitepaper has far-reaching consequences for those businesses engaged in research and development activity and taking advantage of the applicable tax credits. Devised to provide a clear vision of the future of UK business in a post-Brexit era, the paper was developed following consultations with more than 2,000 UK organisations and offers a bright outlook for those conducting R&D work.
Arguably the most significant news from the publication of the whitepaper is that the government is committed to achieving 2.4% of gross domestic product (GDP) investment in R&D by 2027. Such growth will be welcomed across the board, with recent research revealing that GDP investment in R&D in 2015 was just 1.7% – equivalent to £31.6 billion. Once the new target has been achieved, this represents an increase in spending of approximately £13.5 billion.
Such investment growth clearly demonstrates the government’s aim for the UK to be among the world’s most innovative and forward-thinking economies. But what does this mean for those businesses working on such projects?
Improvements to R&D tax credits
To help encourage increased activity in R&D, the government’s extra spending will be supported by a revised – and improved – tax system, with three areas in particular receiving an overhaul.
1. Government support for SMEs
Among the key objectives of the Industrial Strategy whitepaper is to work closer with SMEs to overcome the lack of awareness over R&D tax credits. It remains a fact that many businesses are completely unaware of the existence of – or the qualifying criteria of – such benefits.
Not only will raising awareness be critical to the strategy, but so too will the need to offer the necessary support required for companies to tackle the complexities of making a claim and increasing the potential for success. At present, the thought of completing a claim successfully can prove daunting to small businesses, so the need to simplify the process is obvious.
2. Increase in RDEC rate
Of course, it’s not just small businesses that will be able to benefit from the proposals set out in the Industrial Strategy whitepaper. Effective from 1 January 2018, large organisations involved in R&D will be able to benefit from an increase in RDEC rate from 11% to 12%. Coupled with the recent reduction of Corporation Tax to 19%, the combined change represents a net benefit increase of 9.7p per £1 of qualifying R&D expenditure.
3. Advanced Clearing Service for RDEC
Also for those companies claiming RDEC, a new Advanced Clearing Service offers a degree of assurance and confidence for businesses planning to make a claim. This extent of this pilot scheme is yet to be fully detailed, but its purpose is to ease the burden on HMRC and enable businesses to pre-clear any claim they are making. As such, it is being compared to that of Advanced Assurance for SMEs, which is used to offer a guarantee that any R&D claims will be accepted should key criteria be met.
For more information on the recent UK Industrial Strategy whitepaper, and how your business can get the most from any R&D tax claims, contact our experienced advisors today. Not only can we help you throughout every stage of the process, but we can offer guidance and advice on any future changes.
