Legal briefing | |

Budget 2021: R&D tax relief


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.

 Follow us on LinkedIn for updates from Travers Smith Tax.

For further information, please contact

Read Laura Hodgson Profile
Laura Hodgson
Read Russell Warren Profile
Russell Warren
Back To Top