As the Autumn Budget approaches in October 2024, the Prime Minister has recently warned that this year could be a “painful” one for taxpayers as the Government seeks to plug a £22 billion hole in the public purse.
While much of the reporting focuses on personal taxation – with particular concern for pensions and property taxes – businesses have been left out of the spotlight. So, what might the Budget mean for R&D tax relief?
The impact of the Budget
Let us start by saying that the Budget is unlikely to do anything too drastic to R&D tax relief.
Having gone through a period of upheaval with the merging of the SME and RDEC schemes, the introduction of enhanced anti-abuse measures and the expansion of the technical narrative, the scheme is now likely in for a period of stability.
With such a major overhaul announced just last year, R&D tax is likely to be low on the Government’s list of cuts – although compliance is a must now more than ever.
Anti-abuse
The high cost of the scheme was one of the main drivers of its 2023 overhaul – with the cost of ‘error and fraud’ within the scheme reaching 16 per cent of all payments made under the scheme by 2021.
More recent reporting has also laid a certain degree of the Treasury shortfall at the scheme’s door, a clear indication of ongoing perceptions of R&D tax as an area for potential fraudulent activity.
We’ve seen that HMRC is opening more enquiries and informal checks than in previous years, which is something that is likely to continue as the Treasury aims to reduce loss – as opposed to reducing payments of genuine claims.
Long-term thinking
The issue that the Government faces is an acute one, but one which will be supported by long-term solutions.
In the case of boosting tax take in the long run, it may actually be beneficial for the Treasury to keep incentivising R&D. In turn, this will boost growth in key sectors and may increase long-term receipts of Corporation Tax, VAT and personal tax from skilled workers.
Ultimately, we’re unlikely to see another overhaul of the R&D tax scheme. Instead, it’s likely that HMRC will continue its programme of enquiries into claims in a bid to reduce the level of loss for the scheme.
Beyond that, it seems to be in the Government’s best interests to continue to incentivise R&D in industry if the UK is to maintain and grow its reputation in this sector going forward.
This is going to be crucial for a healthy, future-focused economy in the coming years.
Are you clients concerned about what the Budget holds for R&D tax? Contact our experts for ongoing advice and support.