R&D changes go against simplification remit

Proposed changes to research and development tax relief will make it more complicated for businesses, the Association of Taxation Technicians (ATT) has warned.

Draft clauses for what is expected to become Finance Bill 2023-24¹ propose consolidating the two separate reliefs which make up the current R&D system into a single scheme. However, they also include a new enhanced relief for “R&D intensive” small and medium sized enterprises (SMEs) which will operate as a standalone scheme and will not be wrapped into the single scheme.

The ATT² says this will work against the Government’s ambitions to simplify the tax system, instead creating more complexity and confusion for businesses.

Senga Prior, Chair of the ATT Technical Steering Group, said:

“We do not support the introduction of a single, merged R&D scheme, as it will not take into account the very real differences between the activities and needs of smaller and larger companies. However, we acknowledge that it could be a significant simplification to the existing system. Unfortunately, what is currently being proposed does not represent any simplification.

“The proposals in the draft legislation will still see two separate regimes – the new above the line credit ‘single’ scheme and a separate SME scheme which is only available to a small number of R&D intensive companies. This will arguably result in an overall increase in the complexity of the R&D relief regime, rather than simplification.

“The proposals are extremely disappointing given that the simplification was a key advantage identified during the consultation process on the new single scheme.

“We would recommend that, once the new ’single scheme’ is launched, any enhanced support for R&D intensive SMEs be included within that, rather than operating on a standalone basis.”

The ATT has also expressed concerns that the commencement date of April 2024 for the new single scheme is too soon, and said that more time should be taken to consult and ensure the scheme can be delivered successfully.

Senga Prior added:

“The proposed April 2024 timetable for introducing the new combined scheme is overly ambitious. Such a timescale does not allow for proper consultation, or for the required systems and processes to be put in place by business, agents, software providers and HMRC.

“We note that the draft legislation indicates the Government has not yet taken a final decision on whether to introduce the new single scheme, but intends to keep open the option of doing so from April 2024.

“We strongly recommend that the Government delays the introduction of the single merged scheme to allow more time for consultation and preparation, incorporating the additional support for R&D intensive SMEs into the current SME scheme in the meantime.”