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For better or worse? The corporate tax roadmap

Written by admin on . Posted in Budget, Corporation Tax, R&D. No Comments on For better or worse? The corporate tax roadmap

As part of the October Budget, the government published a ‘corporate tax roadmap’, outlining a commitment to maintaining corporate tax rates for the duration of this parliament. This provides businesses with welcome certainty going forward, although the existing increased rates of corporation tax introduced in 2023 remain a source of disquiet.

The government’s intention with publishing the corporate tax roadmap is that a stable and predictable tax environment will help to provide the confidence companies need to invest, innovate and grow over the long term.

Main commitment

The government has left itself the option of cutting the main rate of corporation tax should this be necessary to keep the UK’s tax regime competitive. This includes:

  • Rate of corporation tax: The main rate will be capped at 25%, with the small profits rate and marginal relief kept at their current rates and thresholds.
  • Capital allowances: The system of 100% and 50% first-year allowances on new plant and machinery expenditure will be maintained, as will the £1 million annual investment allowance threshold and the structures and buildings allowance.
  • R&D reliefs: The current rates for both the merged research and development (R&D) expenditure credit scheme and enhanced R&D intensive support for small- to medium-sized enterprises (SMEs) will be maintained.
  • Loss reliefs: The current loss reliefs for both standalone companies and groups will remain in place.

Potential improvements

The roadmap also highlights areas of corporate tax where the government will explore possible improvements. One particular area of concern is the tax treatment of predevelopment costs. A recent Upper Tribunal decision was that the cost of preliminary studies performed prior to the installation of wind turbines did not qualify for capital allowances.

Not surprisingly, this decision has caused uncertainty for investors and a follow-up consultation will be launched in the coming months. The Upper Tribunal’s decision does not match the government’s aim of encouraging investment in renewable energy.

The full text of the government’s corporate tax roadmap can be found here.

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R&D tax relief schemes set to merge, but concerns remain

Written by admin on . Posted in Corporation Tax, R&D. No Comments on R&D tax relief schemes set to merge, but concerns remain

The two existing research and development (R&D) tax relief schemes are set to merge, although the newly created scheme will be similar to the R&D expenditure credit currently claimed mainly by large companies.

Although the merger will remove the complexities when companies move between schemes, there will invariably be some who significantly lose out as a result of the changes.

The merged scheme and other changes will apply in relation to accounting periods beginning on or after 1 April 2024.

R&D expenditure credit (RDEC)

Along with a deduction for the R&D expenditure itself, the RDEC provides for a 20% standalone credit. Since the credit is taxable, it is worth £15,000 for every £100,000 spent on R&D assuming the main rate of corporation tax applies.

  • For loss-making companies, the expenditure credit can lead to a repayment.
  • When calculating the repayment, the notional tax rate applied will in future be the profit rate of corporation tax of 19%.

If not used to reduce the current year’s corporation tax liability, the expenditure credit – before any alternative use – is capped according to the amount of PAYE and national insurance contributions paid in respect of R&D workers. In future, the more generous cap from the SME scheme will be used.

R&D-intensive SMEs

Despite the merger, loss-making R&D-intensive small or medium-sized enterprises (SMEs) will still be able to claim a 14.5% repayable credit under the existing SME scheme.

  • Given there is an 86% uplift, this works out to a cash repayment of £26,970 for every £100,000 of qualifying R&D expenditure.
  • R&D intensity is calculated as the proportion of an SME’s qualifying R&D expenditure compared to total spending. The intensity threshold is to be reduced from 40% to 30%.

Also, a one-year grace period will be introduced for companies that fall below the 30% threshold.

HMRC’s guide to the RDEC as it currently applies can be found here.

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Fraud countermeasure drives R&D tax relief changes

Written by admin on . Posted in Corporation Tax, R&D, Tax. No Comments on Fraud countermeasure drives R&D tax relief changes

The level of fraudulent claims being made for research and development (R&D) tax relief has prompted HMRC to introduce a new procedure: companies must provide detailed information ahead of making their claim.

HMRC figures show that nearly 20% of claims for R&D tax relief are fraudulent, so it is no surprise they are tightening up on the claim process. Non-compliance is a particular problem when it comes to small value claims, with nearly 80% of claims for less than £10,000 being suspect.

The new requirement will mean having to submit an additional information form to HMRC to support a claim for R&D tax relief or for expenditure credit.

This new form is a separate requirement to the claim notification form a company must submit to HMRC in advance of a claim for R&D tax relief. Notification applies for accounting periods beginning on or after 1 April 2023.

Submitting the new form

The additional information form must be sent to HMRC before the company’s corporation tax return is filed. If the tax return is filed without the additional information being provided, HMRC will simply remove the claim for R&D tax relief from the company’s tax return.

  • HMRC has set up an online portal for submitting the additional information form.
  • The new process will allow HMRC quickly to assess the validity of a claim, especially the level of expertise of those involved in preparing the claim.
  • The form requires detailed information on the R&D project, including a breakdown of the costs involved. For SMEs with just one to three projects, a full description of each project is required.

HMRC now require a considerable amount of additional information to be submitted, and this will be a challenge for SMEs. Companies should therefore start preparing for their R&D tax relief claims as far in advance as possible to avoid any last minute surprises.

HMRC guidance about the new requirements can be found here.

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