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Budget 2021: R&D tax relief

Overview

An interesting consultation on research and development tax credits was published alongside the Budget.

Currently R&D reliefs are available under two schemes which overlap to an extent:

  • Research and development expenditure credit (RDEC): a 13% above the line credit and is primarily used by larger companies.

  • SME scheme: 230% deduction or tax credit of 14.5% if the company is loss-making. This scheme is only available to SMEs.

The government aims to increase investment in R&D to 2.4% of UK GDP by 2027. This broad-ranging consultation invites responses on whether the two current schemes should be combined – perhaps with a higher rate for SMEs. The consultation also considers the location of R&D claims (currently concentrated in companies headquartered in London and the South East and East of England) and whether R&D reliefs could be used to incentivise R&D with a social value, for example, development of green technology. There is also a hint that the government may consider restricting relief in some situations where the R&D activity takes place outside the UK.

R&D reliefs are an expensive use of public money; R&D relief cost £5.1bn in 2017-18. It will be interesting to see whether the government decides to use R&D in a more nuanced way, perhaps to incentivise green technology or achieve a more even geographical spread of R&D claims in the UK. However, it will also be important that any changes do not detract from the government's aim to increase overall investment in R&D.

Read the full consultation

 

Return to Budget 2021.

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