The ‘Legislation day’ draft legislation included measures which would introduce the anticipated single, merged scheme for R&D tax relief, replacing the separate SME and RDEC schemes, although HMRC has been careful to note that no decision on whether or not to proceed with the merged scheme has been taken (any such decision is expected to be announced in a future Budget). The idea is to have the detail ready to go live on 1 April 2024, if the government does indeed decide to take the proposals forward.
The new merged scheme would operate along the lines of the existing RDEC scheme, via a taxable expenditure credit, and HMRC is running a further consultation now that the draft provisions have been published (see report).
As the CIOT notes, the publication of detailed draft legislation suggests that the government does intend to implement the new single scheme. The CIOT also comments that, although the new scheme would potentially bring benefits around simplification, a single rate for large companies and SMEs would not necessarily seem fair for smaller companies. Additional relief would be available for some R&D-intensive SMEs, but this would in effect mean the continued operation of two schemes.
Ellen Milner, CIOT director of public policy, said: ‘Whilst we recognise that it would involve additional complexity within the scheme, consideration should be given to having a higher rate of R&D relief for all smaller companies within a single scheme, especially during a transitional period. An approach of different rates would also allow R&D intensive SMEs to be within the single scheme, with a higher rate of relief.’
The CIOT says the proposed April 2024 timetable is ambitious, given concerns around the impact of frequent regulatory changes on the ability of businesses to plan and invest, but notes that: ‘In this regard publishing draft legislation at this early stage, and before a final decision has been taken is helpful.’
Carrie Rutland, partner at BDO said: ‘Making radical changes to tax law at short notice not only creates uncertainty for compliant businesses but also risks introducing new rules with loopholes that fraudsters can exploit further down the line.’
‘I believe the changes should be delayed until at least 2026 so that they don’t damage the R&D investment the relief is supposed to support,’ she said.
Rutland also welcomed the changes in the draft legislation to allow outsourcing costs to be claimed where work is outsourced to a UK company, but cautioned that restrictions on claims for subsidised R&D could have a wide-ranging impact on business (although HMRC says that the subsidy provision in draft CTA 2009 s 1042C is still under consideration).
The ‘Legislation day’ draft legislation included measures which would introduce the anticipated single, merged scheme for R&D tax relief, replacing the separate SME and RDEC schemes, although HMRC has been careful to note that no decision on whether or not to proceed with the merged scheme has been taken (any such decision is expected to be announced in a future Budget). The idea is to have the detail ready to go live on 1 April 2024, if the government does indeed decide to take the proposals forward.
The new merged scheme would operate along the lines of the existing RDEC scheme, via a taxable expenditure credit, and HMRC is running a further consultation now that the draft provisions have been published (see report).
As the CIOT notes, the publication of detailed draft legislation suggests that the government does intend to implement the new single scheme. The CIOT also comments that, although the new scheme would potentially bring benefits around simplification, a single rate for large companies and SMEs would not necessarily seem fair for smaller companies. Additional relief would be available for some R&D-intensive SMEs, but this would in effect mean the continued operation of two schemes.
Ellen Milner, CIOT director of public policy, said: ‘Whilst we recognise that it would involve additional complexity within the scheme, consideration should be given to having a higher rate of R&D relief for all smaller companies within a single scheme, especially during a transitional period. An approach of different rates would also allow R&D intensive SMEs to be within the single scheme, with a higher rate of relief.’
The CIOT says the proposed April 2024 timetable is ambitious, given concerns around the impact of frequent regulatory changes on the ability of businesses to plan and invest, but notes that: ‘In this regard publishing draft legislation at this early stage, and before a final decision has been taken is helpful.’
Carrie Rutland, partner at BDO said: ‘Making radical changes to tax law at short notice not only creates uncertainty for compliant businesses but also risks introducing new rules with loopholes that fraudsters can exploit further down the line.’
‘I believe the changes should be delayed until at least 2026 so that they don’t damage the R&D investment the relief is supposed to support,’ she said.
Rutland also welcomed the changes in the draft legislation to allow outsourcing costs to be claimed where work is outsourced to a UK company, but cautioned that restrictions on claims for subsidised R&D could have a wide-ranging impact on business (although HMRC says that the subsidy provision in draft CTA 2009 s 1042C is still under consideration).
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