The Chancellor announced a critical extension of VCT and EIS sunset clauses. The extension provides vital funding, without which research indicates enterprise would suffer. Changes to R&D schemes were announced, including a merger of prior SME and RDEC schemes
In September, accountancy firm Price Bailey highlighted concerning data indicating that without an extension of the sunset clause for the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT), UK-based innovation would fall behind.
The firm’s research found that since its inception, EIS funding has flowed to over 53,000 companies, totalling nearly £30 billion. Similarly, amid the growth of AI and tech, the research found VCT subsidy to be a critical funding source, with 37% of VCT funding directed towards AI, equating to £250 million of investment in this growth sector in the tax year 2020/21.
The Chancellor’s Autumn Statement indicated positive steps towards ensuring the future of UK-based enterprise, research and development. Announcements specified an extension of the VCT and EIS sunset clauses to 2035, with the extension set to receive legislation in the Autumn Finance Bill 2023.
Changes to R&D tax relief schemes were announced, including a merged scheme, combining the existing SME and RDEC schemes, and an improvement of the scheme for R&D intensive SME’s as the R&D expenditure threshold is reduced from 40% to 30%.
Steven Butcher, Tax Director at Price Bailey, comments on the announcements:
The new merged R&D scheme should be good news for companies who make claims under the existing RDEC scheme. It has been enhanced in several respects as part of the merger, including notional corporation tax charges on credits of 19% rather than 25% for loss-makers, resulting in cash flow improvements where credits are receivable.
The changes are the conclusion of a review of R&D tax reliefs to ensure the UK remains a competitive location for cutting-edge research, the reliefs continue to be fit for purpose, and taxpayer money is effectively targeted.
HMRC has however noted that further action may be needed to reduce the unacceptably high levels of non-compliance in the R&D reliefs, a compliance action plan is due to be published in due course.
The reforms to R&D tax reliefs come following the introduction of new requirements seen earlier in the year. New claimants must notify HMRC in advance of an R&D tax relief claim and all claimants must provide additional information via a separate return to HMRC before any R&D claim may be included in their corporation tax return.
HMRC have also increased the amount of detail required in R&D claims, publishing extensive further guidance clarifying their interpretation of the relevant rules and key definitions.
With so much HMRC focus on R&D tax reliefs, it continues to be vital for claimants to ensure that all criteria are carefully considered and that required returns and information are provided to HMRC to mitigate the risk of any disruptive and costly enquiry process.
The role of R&D funding is critical for driving UK-based innovation and entrepreneurship in key sectors, such as those in AI and manufacturing. It’s good to see these items are clearly high on the Government’s agenda, which was reflected in the recent Autumn Statement.
NOTES TO EDITORS
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Price Bailey is a top 30 accountancy practice specialising in providing accountancy and business advice to enable the growth of regional, national and international businesses. In addition to traditional accounting services, the firm has a range of specialists in many areas, which combine to provide a complete, integrated business offering. These include tax consultancy, corporate finance, strategic planning, insolvency & recovery and employment law.
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