R&D reforms effectively give SMEs state funding

REFORMS TO research and development tax reliefs will effectively give businesses government funding to innovate, advisors have said.

The R&D consultation was released last week. It proposed two major reforms: removing a cap on how much of a tax rebate companies can receive; and move from the current “superdeduction” method of reducing a company’s taxable profits at the year end to a system that reduced the company’s final tax liability – the “above the line” tax credit system.

Currently, companies are able to claim a rebate on their research and development work. However, they are limited to the amount of National Insurance and income tax they have paid.

But the proposals have removed this cap. This means that up to 1,000 companies a year will be given money over and above the tax they have paid to cover their R&D costs, effectively amounting to government funding, PwC partner Diarmuid Macdougall said.

“The consultation document confirms the proposed changes from the Budget to increase the rate of relief for SMEs and the removal of the PAYE/ NIC cap, which are subject to EU approval. There will be further consultation on the removal of the PAYE/NIC cap to ensure safeguards are in place to prevent abuse of the new rules. The removal of the PAYE/NIC cap will be particularly beneficial to those SMEs that have a small workforce but large R&D expenditure,” he added.

The change to “above the line” accounting will benefit businesses, he said. At the moment, the incentive is claimed after the end of the tax year, so R&D departments do not see the benefits. “It will be much more effective on decisions on where to locate R&D investment if it reduces the cost of doing R&D so it is within the operating costs,” he added.

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