General Election 2019: R&D tax relief – what next?
With 72 hours to go until election day, Chris Barlow, partner at MHA Macintyre Hudson, considers what lies in store for businesses that rely on R&D tax relief.
One of the most generous, but underused, tax reliefs available to business is related to research and development. Introduced to encourage innovative practices, it has cost HMRC more than was envisaged, but it has been hugely beneficial. Especially during the last recession, where in some cases, it was literally the difference between keeping the factory open or closing the doors.
Whilst both of the main parties appear to be leaving the SME scheme untouched, there are differences in their approach. The Conservative manifesto speaks of increasing the tax credit available to large companies to 13 per cent whereas Labour will phase it out alongside Patent Box.
R&D tax credits amounted to £4.4 billion in 2016-17, split fairly equally between small and large companies. The average claim for a large company is ten times that of a small company, so it could be argued larger companies take a disproportionate share of the pot. But given the bigger cost base of larger companies, this is not surprising. So the proposal to raise the credit available to large companies to 13 per cent will be attractive to some whereas phasing out may raise concerns over the future of R&D relief.
R&D is a vital stream for business, helping to relieve the pressure on sectors already being squeezed, such as the automotive industry. It remains to be seen what position the winning party (if there is one!) will adopt, but its clear that R&D tax relief is something that SMEs rely on.
