Research & Development Tax Relief - Consultation


HM Treasury has now published a further consultation on R&D tax credits for both the large company and SME scheme.
The current areas being consulted, and issues addressed are:

  • Whether the relief should be given "above the line" - in other words instead of the relief being an enhanced deduction against taxable profits, it should be a credit against the tax. This would be a significant change and is being considered for the large scheme but may be considered for the SME scheme too. It would necessitate some type of refund under the large scheme similar to the SME scheme
  • Whether SME companies can claim relief on routine work that they are undertaking as subcontractors to a large company that forms part of a larger R&D project. Once again, this will be complex as the SME will need to know that the work is R&D and some form of certification or joint election between large contractor and SME subcontractor will be necessary
  • A relaxation of the rule on agency or externally provided workers where such "employees" are within the group or are to all intents and purposes treated as employees of the claimant company
  • Improved guidance will be published this month in draft form as to what constitutes R&D and what constitutes production. This will form part of HMRC's manuals as opposed to being legislated for. This will be a very useful piece of guidance for situations where prototypes are built but sold at a reduced cost
  • Confirmation SME uplift will increase from 100% to 125% from 1 April 2012 (subject to EU approval)
  • Confirmation that the PAYE/NIC cap on repayable tax credit will be removed from 1 April 2012 (SMEs only)
  • Confirmation that the £10,000 minimum spend criteria will be abolished from 1 April 2012
  • A trial basis for start up companies to liaise with HMRC R&D unit for advance clearance that the work being carried out qualifies for the relief (on a voluntary basis)

This further consultation will end on 31 August 2011 with draft legislation to be published in the Autumn in the form of the Finance Bill 2012.
If you wish to discuss R&D tax relief in more detail please contact Nigel Holmes