Budget 2020 – Positive changes to R&D

The Chancellor, Rishi Sunak, made some positive announcements in the Budget around R&D.

The Budget sets out plans to increase public R&D investment to £22 billion per year by 2024-25, taking public spending on R&D to 0.8% of GDP, to support research and innovation in the UK.

Private investment is seen as extremely important in meeting this economy wide investment target, and to that end, from 1 April 2020 the R&D Expenditure Credit (“RDEC”) available to large companies will increase from 12% to 13%. This increases the effective rate of relief from 9.72% to 10.53%. The impact of this is illustrated below:

R&D Expenditure 100,000100,000
RDEC (above the line) 12,00013,000
Corporation Tax (2,280)(2,470)
Cash Repayment 9,72010,530
Effective rate of tax relief9.72%10.53%

This is excellent news for large companies both in terms of reporting results, and cash benefit.

A previously announced cap on SME company R&D repayments, limiting the amount SME companies can receive to three times the their total PAYE/NI liability for the year, has also been pushed back to 1 April 2021, which is a welcome delay for small companies. This means that those businesses with significant materials or subcontractor costs will not be penalised.

The government will also consult on whether qualifying R&D tax credit costs should include investments in data and cloud computing, which could increase the available relief significantly for some businesses.

Reforms were announced to the intangible fixed assets regime, to reinforce the attractiveness of the UK as a place for businesses to own and manage intellectual property. From 1 July 2020, companies acquiring older (pre 1 April 2002), intellectual property rights from related parties will be entitled to corporation tax relief on the purchase cost.

All in all, this was a positive budget for R&D and innovation. If you have any questions, please contact us on 0191 285 0321 or email advice@taitwalker.co.uk.