Will Brexit affect R&D tax credits?
When British citizens voted to leave the EU, it signalled a potential shift in the way many UK businesses operate. As negotiations proceed, companies that are involved in research and development work will be asking how R&D tax relief will be affected by Brexit. What is the future of the scheme? Here, we explore how the relationship between the EU and R&D tax credit may look in the coming years.
How are the EU and R&D tax relief linked?
You may be wondering what Brexit has to do with a UK tax relief scheme. One aspect of the incentive is that there are two rates of relief – one for large companies (the RDEC scheme) and one for smaller ones (the SME scheme). The latter is regulated by the EU and operates under State Aid rules.
State Aid rules are in place to protect a fair competitive field for companies across the EU. The financial support offered under the SME scheme therefore needs to be approved by the European Commission to ensure no business receives financial aid that results in an unfair advantage. This is why the receipt of grant funding affects a company’s claim for R&D tax relief.
How will R&D tax relief change when we leave the EU?
Unfortunately, it’s impossible to tell at this early stage how the SME scheme in particular will change. In the Autumn Budget, the chancellor indicated that £2.3 billion would be invested in R&D and insisted that the UK is making important technological advancements.
Although it seems that R&D tax credits and investment will continue, his speech focused on the RDEC scheme, with an announcement that R&D tax credits under it would be increased from 11 to 12 per cent. There was little mention of the SME scheme and any changes that may occur there.
The future for SMEs
It’s possible that Britain’s exit from the EU will free it from the current regulations and therefore increase the amount of R&D tax credits available. UK businesses would not necessarily be subject to State Aid rules, meaning the government could invest more in R&D carried out by SMEs.
That said, the government may choose to replace the State Aid regulations with similar ones to ensure fair competition across the British marketplace. This would prevent companies from abusing the tax credit scheme and acquiring an unfair advantage.
Tackling the uncertainty
If you believe you have conducted R&D projects that are eligible for R&D tax relief, it will no doubt pay to make your claim now. Claims can be made on any qualifying expenditure made up to two years before the current accounting period, so businesses should take advantage of the current rates of relief to claim what they are owed.
For help with your R&D tax credit claim, contact R&D Tax Solutions today. With specialist experience in a range of industry sectors, we can help you to maximise the value of your claim.
