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Are more changes coming for R&D tax?

Author: Tom Mason

The R&D tax sector has been rumbling in recent weeks, with calls for an enhanced R&D budget for the UK as we head towards a General Election on 4 July 2024.

This has created a degree of uncertainty for businesses undertaking R&D and claiming tax relief on relevant expenditure and begging the question – are more changes coming for R&D tax?

The General Election

Much emphasis has been placed on the tax proposals of all parties standing for election.

However, both major parties have expressed support for encouraging R&D through tax and investment.

The Conservative Party has overseen a programme of major changes to the R&D tax relief scheme, including the merging of the RDEC and SME relief scheme and measures to tackle non-compliance and fraudulent claims – which it would likely continue as these begin to take effect.

On the other hand, the Labour Party has affirmed its commitment to promoting R&D in a February 2024 statement: “stable R&D tax credits, 10-year R&D budgets and a new Regulatory Innovation Office.”

In practice, it seems likely that the R&D tax relief scheme won’t be going anywhere soon, nor is it likely to face another significant overhaul in the coming few years.

A rising budget?

A recent report by Dr Mann Virdee of the Council on Geostrategy and a statement by Onward, Reforming Whitehall to support science and technology have called for an increase in the amount the UK invests in R&D activities, including to support tax reliefs.

Findings argue that the UK’s R&D budget should be brought in line with the nations investing the most as a percentage of GDP – including the United States, Belgium and South Korea.

This would see R&D funding support increase from 2.9 per cent to 4.2 per cent of current GDP.

Whether this will be introduced by subsequent Governments remains to be seen, but it would be a prudent move to achieve the scheme’s overall goal of incentivising R&D and enhancing the UK’s position on a global scale.

What will be most interesting is to see how any increase in R&D budget would be split between funding for tax reliefs and direct investment in R&D activities.

Firms advising businesses will also need to keep updated on how direct funding relates to R&D tax and qualifying expenditure.

Our verdict

It seems likely that R&D tax is heading into a period of relative stability, after 18 months of drastic changes in the scheme itself and enforcement by HMRC.

While it is certainly possible that businesses undertaking R&D may have more funding available to them, the scheme itself – including relief rates and compliance requirements – are likely to remain as they are for the time being.

For guidance on advising clients through R&D claims, contact a member of our team today.