Research and Development Tax Changes for 2015

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The Finance Act 2015 introduced a number of changes for research and development tax reliefs.

Increases in rates of relief

  1. For claims made under the SME scheme the enhanced deduction has increased from 225% to 230% of qualifying expenditure incurred on or after 1 April 2015. This enhancement reduces the taxable profits of the company.
  2. For claims made under the large company scheme the enhanced deductions remains at 130%. The scheme large company scheme will end on 31 March 2016 when it is fully replaced by the RDEC scheme.
  3. For claims made under the RDEC scheme rules the payable tax credit has been increased from 10% to 11% from 1 April 2015.

Expenditure on consumable items

In the Autumn Statement 2014 the Government proposed changes to the research and development rules in relation to expenditure on consumable items. These changes would restrict a company’s qualifying expenditure in relation to expenditure on consumable items where those items are incorporated in a product that the company sells or transfers as part of its business activities. The legislation would have meant that companies transferring consumable items, or items incorporating them, for no consideration, for example when disposing of them as scrap, would no longer have received research and development relief on their cost. Similarly, those companies that transfer items to another party so that they can continue further testing as part of the R&D process would also have been affected. This would have meant a reduction in the support that the UK Government provides for R&D activities in cases where the company is unable to recoup the costs of those activities.

Fortunately the Government has listened to the concerns raised during the consultation period from businesses and has amended the proposals.  Under the Finance Act 2015 businesses that are unable to recoup the costs of their research and development because they transfer products at no consideration for further testing or sell or transfer them for scrap, should continue to be able to benefit from the research and development relief.

If you have any questions over the impact of these changes then do please get in touch.