At the time of writing there isn’t a great deal that can be said with any degree of certainty regarding Brexit. We are, however, seeing the wider effects of the uncertainty over Brexit in the local economy, with many companies unable to take medium- or long- term decisions. However, this shouldn’t be a reason for companies to put off making decisions about R&D claims. Many SMEs who are entitled to this relief are missing out – make sure you’re not one of them.
It’s simply not possible to write with any authority as to the likely outcome of the Brexit negotiations – at the time of writing, it appears there may be an extension to the negotiations to the end of the year, but this might change tomorrow, so who knows. What has been increasingly apparent over the past few months is the impact the uncertainty is having on companies in our region. Whilst initially perhaps sheltered from the impact in the immediate aftermath of the vote back in 2016, as the (first) deadline of 29 March came ever closer, more and more local companies were affected by the lack of certainty – perhaps having orders cancelled, or at least postponed. In these circumstances, it’s even more important to ensure that your company is receiving all the support it can, and whilst this uncertainty means that inevitably there are some decisions which are harder to make, considering whether your company is able to make an R&D claim shouldn’t be one of them.
Briefly, the relief is worth almost £25k in corporation tax saved for every £100k of qualifying spend, with certain loss-making companies being eligible for a credit payment from HMRC. This can have a significant impact on the fortunes of qualifying companies and yet the Government’s own statistics show that the relief is massively underclaimed, especially by SMEs. One of the main reasons that the relief isn’t claimed is because the level of innovation required to claim is often overestimated – it’s not just for chemists in laboratories but applies to companies in all sectors, including manufacturing and software development. If you are uncertain whether your business could claim R&D Tax relief, then our simple to follow Eligibility Checklist, will help you identify in 11 easy steps whether you could claim.
How might R&D tax reliefs be affected by Brexit? Again, a very difficult question to answer without recourse to a crystal ball! However, weighing up the available evidence, it seems unlikely that the R&D tax reliefs available after Brexit will be less generous than they are currently.
Firstly, it’s worth remembering that EU rules currently apply to limit the relief available to SMEs. As the R&D relief regime for SMEs is so generous, it is classed as State Aid and it falls under EU regulation. This means that any companies which are receiving another form of State Aid, such as certain grant funding, cannot also claim relief under the SME scheme but must claim under the (significantly less generous) RDEC scheme. It also means than whenever the UK government wishes to increase the R&D credit, it first has to obtain approval from the EU. Whilst it’s likely there will be some transitional arrangements, ultimately following Brexit the State Aid cap would be removed and there would be scope to make the regime even more beneficial.
The Government’s own research shows that for every £1 invested in R&D, between £1.53 and £2.35 is reinvested in the economy. Trends over recent years have only shown the commitment to the R&D tax reliefs increase, for example, the additional uplift rising from 50% in the very early days to 130% now, and the removal of the lower expenditure limit. Reference in recent Budgets to R&D reliefs has only been positive. Similarly the Labour party manifesto is clear that R&D is crucial to the economy. Against this background, it’s unlikely that the relief would be reduced.
With this in mind, we would encourage you to contact us to check whether your company is entitled to this relief.
