Overview of the R&D Tax credits consultation need and response

 Economic growth and prosperity rely heavily on innovation. The government has long recognised that a competitive R&D tax credit scheme is an important driver of the UK's ambition to become a global leader in science and innovation, as well as to achieve its target of increasing total investment in R&D to 2.4 percent of UK GDP by 2027.

HMRC launched a wide-ranging consultation on R&D credits earlier this year to solicit feedback from businesses on how the incentives could be improved to encourage more R&D investment.

The following are some of the key drivers for the government to consult on the effectiveness of R&D regimes:

1. Ensuring that the UK regime is and remains a globally competitive location for R&D investment.
2. Modernizing the regime - The regime has been in place in the UK for over 20 years, and while there have been a number of changes, the question of how it best serves innovative business today remains.
3. Ensuring that the incentives are properly targeted in order to encourage increased innovation in the UK while reducing potential abuse of the regimes.

We asked over 200 businesses to share their thoughts on how the current R&D regimes work, whether they influence R&D decisions, and what they thought about potential R&D relief reforms. Our survey yielded the following key themes:

• Currently, nearly half of respondents consider R&D credits when making investment decisions, indicating that there is some positive impact, but more needs to be done to influence R&D investment.
• Businesses want certainty about the available incentives and expect the regimes to be simple in design.
• The complexities of funded R&D for SMEs are challenging to navigate and create uncertainty.
• The majority of respondents supported increased incentives when R&D benefits society as a whole, such as the net zero agenda and investments in green technology.
• The majority of respondents believe that changes are required to reduce abuse of the regimes and would support changes to how the regimes are administered.

As a result of the consultation, there is potential for wide-ranging changes to the reliefs, which will most likely result in winners and losers. Possible changes include expanding reliefs to include cloud, data acquisition, and capital expenditure, as well as removing restrictions that would make overseas costs ineligible.

The importance of R&D regimes is clearly recognised by the Government, HMRC, business, and advisors. That support is critical in driving innovation in the UK, increasing the UK's competitiveness on the international stage, and assessing businesses' post-COVID-19 and Brexit strategies.

Finally, R&D regimes must ensure that their positive aspects (for example, accessibility and value of relief) are balanced against the cost to the Exchequer. They must also reduce the possibility of abuse.

In this series of blogs, we'll explain in detail how we think that would work in practise: encouraging more innovation in the UK while also giving taxpayers more clarity and certainty.

We are one of the greatest accounting businesses in the United Kingdom, and we have the instant Accountancy & taxation fee comparison website, so if you are seeking for taxation and business services, we are the ones to call.