Budget 2021 - What you need to know about R&D Tax Credits

The budget summary for R&D Tax Credits - what you need to know

• The main rate of corporation tax will rise, from 2023, to 25% for businesses with profits above £250,000. This increases the effective rate of relief under the SME scheme, for profitable businesses, from 24.7% to 32.5%. However, the rate of corporation tax remains at 19% for businesses with profits less than £50,000. For businesses with profits more than £50,000 and below £250,000, the corporation tax rate will be tapered, increasing with profits.

• The consultation on the scope of qualifying expenditure has been brought into consideration. The hope is that costs of data acquisition and cloud computing (i.e. such as AWS and other Server costs etc.) will be included within the list of eligible costs. This may be at the costs of relinquishing certain qualifying indirect activity costs.

• The government has an ambitious target to raise total investment in research and development to 2.4% of UK GDP by 2027. R&D tax reliefs have a key role in incentivising this investment by reducing the costs of innovation. It is therefore important to ensure that the reliefs remain up-to-date, competitive and well-targeted.

• For the PAYE Cap, the Government confirmed that where a company has an accounting period that straddles 1 April 2021, the measure does not apply to the part of the period from 1 April, but instead, only affects the next full period starting after that date.

At Budget 2021 the government announced a review of the reliefs, supported by a new and broader consultation with stakeholders from 3rd March 2021 to 2 June 2021.

This consultation will explore the nature of private-sector R&D investment in the UK, how that is supported or otherwise influenced by the R&D relief schemes, and where changes may be appropriate. This will essentially look at how the 2 schemes (SME & RDEC) operate, whether any changes are required to remain competitive with other countries and if the definition of R&D and rates of relief remain effective.