During his first Budget this week, Chancellor Rishi Sunak announced a number of changes to R&D credits.
Firstly, the rate of Research & Development Expenditure Credit (RDEC) will increase from 12% to 13% from 1 April 2020. This is to support businesses investing in R&D and help to drive innovation in the economy. The RDEC is an above the line taxable credit on taxable profits for qualifying development expenditure.
Secondly, the government will consult on whether expenditure on data and cloud computing should qualify for R&D tax credits. Currently there is no category of eligible expenditure into which either of these fit.
Thirdly, the government will delay the PAYE cap on the payable tax credit in the SME R&D schemes until April 2021. The cap is designed to prevent the abuse of the R&D relief for small and medium-sized businesses and had been due to take effect from April 2020. However, following consultation last year which identified a number of problems, the government has delayed the introduction of the legislation for another year. During this time they will consult on changes to the cap’s design, to ensure it targets abusive behaviour as intended while allowing eligible SMEs to access the relief.