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The much-awaited spring budget for 2021 was recently announced by the Chancellor and is being viewed as a mixed bag by many businesses, especially those conducting research and development. Apart from an increase in corporation tax to 25%, several other changes and reviews were announced for businesses, with the hope of stimulating growth, innovation, and investment in the country. Even though stakeholders were lobbying for an increase in R&D tax relief under the SME scheme or the R&D expenditure credit (RDEC) scheme, the government only announced that the SME cap declared earlier will move ahead and for R&D Tax reliefs will be reviewed following consultation with stakeholders.

To paint you a clearer picture, here are the key elements regarding SME and R&D Tax relief from the budget:

  • From 1 April 2021, SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability.
  • For profitable SMEs, the corporation tax rise could see the value of R&D tax relief go up as the claimant will be allowed to deduct 230% of qualifying costs from their annual profit in the form of tax relief, thereby reducing the amount of profit a company pays taxes on. 
  • The eligible expenditure areas are expected to be widened to include Cloud computing and data costs under the R&D Tax credit scheme.
  • The government has proposed a new consultation on the R&D Tax relief scheme to ensure it remains relevant and fair in the evolving R&D centric environment. The review is meant to explore the nature of private-sector R&D investment in the UK and understand the impact of R&D Tax reliefs on this investment, such that appropriate policy changes can be introduced to make it better.

R&D Tax credit scheme is one of the UK government’s most ambitious and successful funding schemes that supports and incentivises innovation in the country. These proposed reviews and changes are aimed at encouraging more investment and, by extension, facilitate business growth across all sectors. 

Datafox’s award-winning team comprising R&D Tax credit specialists has helped several UK firms make the most of this government scheme by getting them the funding they need to support their innovation. Our experts would be happy to discuss the potential implications of these changes to your business. You can also contact us regarding participating in the consultation and understanding the process better.