The 2024 Autumn Budget is one of the most highly anticipated budgets in recent years as the new Government seeks to implement its goals and policies.
Its priority appears to be balancing the public purse, so it seems that we are likely to see a number of cost-saving policies and tax regulations introduced across the wider UK tax code.
While we do not anticipate any major shifts in the R&D tax scheme, our team is taking a look at some of the options that are available to the Treasury and what this may mean for you and your clients.
Rate reduction
From a cost-saving point of view, the Government could look at reducing the headline rate of R&D tax credits, which are paid at a rate of 20 per cent on qualifying expenditure.
As taxable trading income, tax credits are subject to Corporation Tax, leaving an overall benefit of up to 16.2 per cent.
Since it has pledged not to raise the rates of Corporation Tax, the rate of R&D tax credits itself is the more likely target.
This could see claimants receive less in R&D tax credits without a reduction in the number of claims processed and approved.
However, a reduction in the rate of R&D tax credits as a cost-saving measure assumes that claim numbers will remain steady which, with the push towards growth in innovative sectors like technology and energy, seems unlikely.
Additional compliance requirements
The other major option for the Government is an overhaul of how the scheme is assessed and administered, from the preparation of claims to formal investigations.
This could include:
- Increasingly thorough assessment of claims
- Additional cost breakdowns required for supporting information
- Tighter regulations around qualifying costs and activities.
If measures such as these were to be introduced, it would make accessing the scheme more difficult, particularly for SMEs and those carrying out small-scale R&D projects.
Again, however, this is unlikely. While changes are possible, they are not likely to be significant and will not aim to reduce access to the scheme for those that need it.
Having already been through a period of upheaval, the scheme is now due some stability – and it is likely that the Government will set its sights on tax savings in other areas of the economy, such as Capital Gains Tax or Inheritance Tax rises.
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