Rushing R&D changes risks undermining policy aims

Government proposals to introduce a new, merged research and development (R&D) tax relief scheme by April 2024 are “over ambitious” and risk undermining the policy aims of encouraging innovation and growth through R&D investment, the Chartered Institute of Taxation (CIOT) has warned.

Policy papers and draft legislation¹ were published in July for a consultation on a new merged single scheme for R&D, along with additional tax relief for small and medium-sized enterprises (SMEs). However, the Government is keeping open the option of implementing the new scheme in April, just seven months’ time, with a final decision to be made at a future fiscal event (assumed to be the Autumn Statement on 22 November).

The CIOT says² this short timescale means the policy will not be properly scrutinised, and opportunities will be missed to simplify the R&D reliefs system, despite tax simplification being a key government target.

David O’Keeffe, chair of the CIOT’s R&D working group, said:

“We strongly urge the Government to slow down the timetable for this reform. An implementation date of April 2024 is over ambitious, will present practical difficulties for HMRC and taxpayers and will result in unintended consequences. In particular, the short timescale will not allow businesses time to properly prepare for the new rules.

“There has been insufficient opportunity to consider and consult on many important aspects of the new merged scheme, which could result in unexpected outcomes. The rules for subcontracted R&D, for example, deserve a much more detailed discussion than is possible with the proposed timetable.

“It is disappointing that the proposal to move to a new scheme, a concept that we support in principle, is being rushed in this way. The Government should take extra time to consult fully on and properly consider the areas of complexity and difficulty. We should remember ‘more haste, less speed’ to ensure a set of rules that are ‘fit-for purpose’ and deliver on the policy aims of supporting and encouraging R&D in the UK.”

The CIOT added that, by pushing back the implementation date, the Government could also work towards incorporating the additional relief for R&D intensive SMEs into the new scheme, creating a simpler R&D relief system.

David O’Keeffe said:

“As the new rules are currently proposed, the UK will continue to have two R&D schemes, and not a single scheme as had been envisaged and previously consulted on. This outcome flies in the face of overall policy objectives to embed tax simplification within the tax policy making process and the tax system.

“The result of the current proposals is that most of the benefits of a simplification that could come from having a single scheme in the UK will not be realised. This is a huge missed opportunity.”