Will the Government incentive for research and development be affected after Brexit is invoked next March?
It seems to be the word on everyone’s lips – Brexit. And rightly so, as many companies are gearing up for a brand new world outside of the European Union after 29 March 2019.
Opinion is still split, but early indications are predicting a turbulent time for UK business. Data analysis by Magic Circle law firm, Clifford Chance, has suggested that automotive, agriculture, food and drink, and chemicals and plastic industries will be hit the hardest, with tariff and non-tariff costs reaching up to £27bn for exporters.
This means now, more than ever, companies need to be astute in regards to financial planning, including tax planning.
With this in mind, Brexit is an area we have been asked about a lot, as many companies are concerned that the R&D Tax Credits they have come to benefit from will be taken away, or reduced. Below, we discuss this matter and try to ease any fears.
Does the EU have anything to do with R&D Tax Credits?
R&D tax relief is a UK Government-run incentive, so on the face of it you would assume that the EU do not have any power in relation to the tax relief. However, R&D tax relief comprises of two separate schemes running parallel to one another.
The first is the RDEC, or the Research and Development Credit scheme, formerly known as the Large Companies Scheme. This scheme is aimed at larger companies, with more than 500 employees and a turnover more than €100 million (or a balance sheet more than €86 million).
The second is the SME scheme, which to the UK is far more lucrative than the RDEC scheme due to the amount of businesses that fall into this category. This scheme is regulated by the EU, operating under what is known as the State Aid rules.
State Aid legislation ensures that EU members do not assist companies over a certain amount, in order to avoid potentially distorting competition among member states. It is a cap that ensures no EU member obtains an unfair advantage by subsiding R&D tax relief more than an agreed amount.
After Brexit, the UK Government will be free from EU regulation in relation to a subsidy limit, meaning this cap will be potentially removed. If this is the case, our prediction is that R&D tax relief would be a massively important element of the UK’s R&D policy, particularly in relation to SMEs.
Will R&D Credits still exist after Brexit?
It is hard to talk in absolute certainties in relation to anything Brexit related, so we will tread carefully here.
However, from the impression we are receiving from the UK government, and going off past policies in relation to R&D, we can deduce a number of positives. Theresa May’s post-Brexit government has already recognised the importance of stimulating business in the UK through R&D grants. In fact, their own studies have suggested that £1 of R&D tax relief leads to £1.53 – £2.35 back in expenditure, stimulating the UK economy, whilst fuelling innovation.
The government also showed their willingness to support R&D tax relief in 2012 when it lifted the cap on payable tax credits. It also demonstrated a commitment to the tax relief in last year’s Autumn Statement when it increased the RDEC tax relief from 11% to 12% for qualifying expenditure incurred after 1 January 2018.
The most recent budget saw positive steps too, with the government committed to raising the total R&D investment to 2.4% of GDP by 2027, a reported extra £1.6bn.
So, from the general attitude towards R&D tax credits from the UK government, we can deduce that a post-Brexit UK will still see this government incentive thrive.
What can my business do before Brexit?
While we would like to know what a post-Brexit Britain looks like, none of us have a crystal ball. A lack of the details in relation to no-deal, hard and soft Brexit, can leave hard-working companies in the UK left in the dark a little in regards to what their next steps are.
Our advice is this – in the uncertainty of Brexit it is now more than ever companies need to be prudent with their tax relief efforts. We can predict with a fair amount of certainty that R&D tax credits will exist after 29 March 2019, meaning that companies should be thinking now about their tax relief.
We will believe the R&D tax funding system will remain healthy, with more and more businesses applying for relief – an average of £53,000 per claim.
How can rdtaxcredit.org.uk help?
At rdtaxcredit.org.uk, we understand that Brexit can be a minefield to even begin to think about. Add the idea of claiming R&D Tax Credits, and all seems a little daunting.
However, we want to help you through this process, to ensure you receive the financial reward that the UK Government wants to give you.
We offer a friendly and professional approach to R&D Tax Credits which includes:
- A free no obligation initial review.
- 100% success rate
- 30 day quick turnaround