UK Government consultation: R&D tax credit scheme

As background, the R&D tax credit scheme allows qualifying entities an element of tax relief on expenditures relating to research and development (R&D). The two main mechanisms for obtaining relief under this scheme are as follows:

1. small and medium sized enterprises (SME) research and development relief; and
2. research and development expenditure credit (RDEC).

A further explanation of these two mechanisms can be found in our previous article "Here comes the money…making sure to monetise your patenting and research efforts", published February 2020.

In respect of the consultation, the UK Government has recognised that the current R&D tax credit scheme may not be best tailored to cater for aspects of modern-day research and development, such as research costs relating to data and cloud computing. That being the case, the present consultation is seeking feedback on whether such costs should now be included under the R&D tax credit scheme.

Whilst this consultation will be of interest to many, the consultation does make it clear that any proposed expansion of the scheme to include additional areas of tax relief may need to be restricted in other existing areas to ensure fair value for UK taxpayers. Accordingly, the consultation has additionally asked for feedback on where, if at all, such restrictions to the scheme may be practically employed.

In all however, the above consultation is a clear indication of the UK government’s continued commitment to incentivise research and development in the UK as much as possible. As well, and in combination with the rate of relief under the RDEC mechanism increasing from 12% to 13% earlier this year, the consultation also serves as a timely reminder for those not yet invested in the R&D tax credit scheme to consider the opportunities, and forms of tax relief, which might be available to them under the scheme.

The consultation is open for comments until 13 October 2020.