Changes to R&D tax relief

Tax Partner, Tim Lwin explains changes to R&D tax relief at Howard Worth’s Autumn Budget Breakfast

On a clear November morning, Howard Worth’s clients and professional contacts travelled to Macdonald Portal Hotel on Thursday 8th November for the Howard Worth Annual Budget Breakfast Event, a week after Chancellor Phillip Hammond announced an earlier than expected Autumn Budget, to hear tax and financial experts dissect the Chancellors speech.

Tax Partner, Tim Lwin was the first speaker for this event. His presentation explored the Chancellors message of ‘a budget for hard-working families’ and explained the various Tax reliefs for businesses that are available including changes to the Entrepreneurs Relief and Personal Allowance. Tim discussed Research & Development (R&D) tax credit changes, an area that most people associate with scientists and laboratories, however, it was highlighted how almost every industry sector should be able to access these tax reliefs with help from Howard Worth specialist sector: The R&D Co.

He continued by explaining that according to figures released in the Autumn Budget, HM Revenue & Customs (HMRC) has prevented around £300 million of fraudulent R&D tax credit claims since the relief was introduced.

Philip Hammond has promised to clamp down on fraudulent claims by reintroducing a ‘Pay As You Earn’ (PAYE) restriction for the small and medium-sized companies scheme, in a bid to prevent further abuse of this tax relief. This is part of a wider promise by Mr Hammond to clamp down on avoidance, evasion and unfair outcomes in the tax system, which the Treasury estimates will raise an additional £2 billion over the next five years.

Under the new rules, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and National Insurance Contributions liability for that year. These changes are due to be enacted from 1 April 2020 and may upset some SMEs, however, the Chancellor did offer some alternative incentives to businesses. These included a two-year increase in the Annual Investment Allowance (AIA) from £200,000 to £1 million from January 2019 and a commitment to invest £1.6 billion in advanced technologies in the UK.

For more information please contact Tax Partner Tim Lwin: timlwin@howardworth.co.uk