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Increase in the RDEC rate to 13%
With the upcoming budget around the corner, we take a look at the proposed changes by the Conservative Party on Innovation Tax Incentives.
Firstly, in the manifesto leading up to the recent election, Boris Johnson promised an increase in the Research and Development Expenditure Credit (RDEC) rate from 12% to 13%, which will in turn increase the tax benefit to £1,053 for every £10,000 spent on qualifying R&D.
Secondly, the Conservatives promised to review the definition of R&D to include investment in areas such as data gathering and processing, and cloud computing.
The Government maintained their focus on innovation which is great news for economy and businesses thriving to innovate in the UK. “Investment in Research and Development is a key driver of innovation and productivity growth. We are boosting funding to create the conditions for a new wave of economic growth and prosperity across our country.
The Government will be introducing the fastest ever increase in domestic public R&D spending so that public spending on R&D rises above the OECD average and reaches £18 billion by 2024.
This investment, which includes a guarantee to match EU R&D funding, a new national Space Strategy and investment in a range of technologies, could help to address some of the greatest challenges for modern society.”
The solutions outlined by the Conservative party include:
- They will launch the fastest ever increase in domestic public Research and Development spending in British history. This will increase spending so that it reaches £18 billion in 2024-25. This will be a doubling of public R&D spending compared to 2017 and will be approximately 0.62 per cent of GDP, higher than the OECD average of 0.6 per cent and up from 0.43 per cent currently.
- This huge investment will fund a range of transformative technologies. This will include funding for advanced maths research, a national Space Strategy, support for nuclear fusion and investment in the National Institute for Health Research to invest in translational health, social care and mental health research. Investment in R&D will also help to develop the innovations the UK need to tackle climate change and meet the Net Zero target.
- They will set up a British Advanced Research Projects Agency. This includes investment of £800 million over five years for a new research institution in the style of the US ARPA, which funds high-risk, high-reward research that might not otherwise be pursued, to support blue skies research and investment in UK leadership in artificial intelligence and data.
- Replace EU funding. EU R&D programmes are currently paid for through the UK’s taxpayer-funded EU budget contributions. This £18 billion package will guarantee that all EU R&D funding will be replaced post-Brexit, including funding for universities.
- They will incentivise a step change in private sector R&D investment. Even with this huge public investment in R&D, the Government will need to incentivise much greater private R&D in order to meet the 2.4% GDP target. So, they are proposing to introduce a new Challenge Led Innovation Procurement fund which will provide innovative firms with capital and launch an extension of the innovation loans pilot which helps improve access to finance for small businesses.
An R&D Tax Credit expert such as Innovation Tax can ensure that businesses are fully maximising their entitlement, whilst keeping clients up to date with changes to legislation. At Innovation Tax, we dedicate time to our clients and partners to inform them of changes and new developments which may be of interest and go over and above expectation to demonstrate that we are not just R&D Tax experts.