Increasing R and D tax repayments
In the Budget the Chancellor announced an increase in the additional tax deduction on qualifying R&D expenditure from 75% to 100% and then to 125% in 2012. The increase to 100% is expected to apply from 1st April, but is still subject to state-aid approval. This is good news for those small and medium-sized companies already paying corporation tax and using the R&D enhanced relief to reduce their corporate tax bills. Those paying corporation tax at the small companies’ rate will see their tax savings increase to 40% of qualifying spend. One client spending around £300,000 on R&D will see their tax savings increase to 55% this year and 59% next year of R&D spend worth well over £150,000 to them as they are marginal rate corporation tax payers.
The news was not so good for those early-stage businesses that have cashed in their R&D enhanced relief with HM Revenue & Customs (HMRC). Previously, this was claimable at 14% of the 175% enhanced relief, giving an effective tax reclaim of 24.5% of qualifying R&D spend. The rate at which the reclaim is made has been reduced to 12.5% of the 200% enhanced relief, giving an effective tax reclaim of 25% of qualifying R&D spend. So there is little change for businesses that reclaim their tax credits.
The 125% change in 2012 may be accompanied by a similar reduction in the reclaim rate. This is due to EU-imposed state-aid limits on the tax incentives the UK can give.
The good news for early-stage businesses is that the previous £10,000 minimum and cap related to payroll taxes have been lifted, which may allow a number of companies into the scheme and save on paying salaries purely to trigger reclaims under the scheme.
If you have any questions about how your business may be affected by the recent changes in R&D tax credits, ask your client partner or contact Jon Sutcliffe on 020 7566 4000.