R&D tax credits - the best COVID-19 business support out there? James Geary of Randall & Payne
In these challenging times for businesses, the Government's COVID-19 support measures have been a vital lifeline for so many.
However, aside from the headline grabbing furlough scheme and cheap loan support, it is easy to lose sight of a valuable cash incentive that has been around for 20 years, and is now more critical in its support than ever.
One of our clients in the food and drink sector has just received a significant cash boost from this scheme and commented to us that the payment has made the difference between continuing and ceasing the business.
R&D tax relief provides a vital cash boost to companies that are developing and improving their products, processes or systems.
In recognition of the importance of this relief at the outset of the coronavirus pandemic, HMRC deployed additional resources to their teams reviewing and processing claims to ensure that they continued to meet their target of processing and issuing cash payments within 28 days of application, and with the odd exception, our experience is that they have met that target and usually manage to beat it.
With the relief for small and medium sized companies governed by European State Aid rules, many of our clients and contacts have understandably asked questions about the future of the relief once our exit from the EU is finally concluded.
However, our long-held view is that this relief is crucial to the government's plans to support innovation and improve productivity across the UK and is here to stay. This view is backed up by two current changes which HMRC is consulting on.
The first of these will bring back (from April 2021) a cap on the cash payment that a company can receive, related to the amount of payroll deductions they have had to pay across to HMRC.
The original cap was abolished in 2012 but certain abusive structures have forced HMRC to bring it back. However, as the finer detail has unfolded it is clear they are working hard to ensure that genuine small companies will not be adversely affected.
The key positive is that there will be a £20,000 "de minimis", meaning any claim can be for a cash payment of up to £20,000, even if there are no payroll deductions.
This will be the case for a small start-up which is developing technology but cannot yet afford to commit to formally employing staff, so is instead using subcontractors. Further developments are also being proposed to permit such companies to "look through" to the payroll deductions of their subcontractors in this scenario, so it may well be that they can still claim more than £20,000 per annum in this way.
The second change is a new consultation launched last week, which is considering broadening the scope of what costs qualify.
The last time HMRC reviewed this was 10 years ago, so the time is right to look again at the rules to account for how technologies have evolved in the last decade.
They are looking in particular at costs of data and cloud computing, in the sense of supporting R&D activity by means of rental of software or storage, as opposed to the purchasing of software (which already qualifies).
Work on processing datasets is also being considered as a potential qualifying cost.
We are engaging with HMRC and our professional bodies on the finer detail of these proposals, but what is clear from these changes is that the relief is here to stay, and in fact there are signs that the government is keen to increase the support still further, as well as ensuring the rules remain relevant for today's state of technological advancement.
To discuss your situation please contact James Geary on firstname.lastname@example.org or call 01242 776000 and request a call back. We offer an hour-long advice clinic free-of-charge to assess your circumstances and let you know the best way forward.
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