Rushed timetable for R&D merger risks harming growth
Today’s announcement that the merger would go ahead on this tight timetable has been made in the face of representations by the CIOT and other representative bodies, business groups, advisory firms and businesses, overwhelmingly in favour of delaying the merged scheme to allow time for businesses to get to grips with the proposed changes, and, importantly, to iron out complexities and remaining uncertainties.
David O’Keeffe, chair of the CIOT’s R&D working group, said:
“The change in commencement date from ‘expenditure incurred on or after 1 April 2024’ to ‘accounting periods starting on or after 1 April 2024’ is a welcome change but probably not enough. Rushing this change through will bring problems both for taxpayers and for HMRC. It risks undermining the policy aims of encouraging innovation and growth through R&D investment.
“The new merged scheme is billed as being tax simplification, but it is far from clear that this will be the case. There will still be two schemes for R&D relief, with the additional relief for R&D intensive SMEs still being given under the existing SME scheme. Pushing back the implementation date might have enabled special provision for R&D intensive SMEs to be incorporated into the new scheme, resulting in a truly simpler system.
“It is disappointing that the move to a new merged scheme, a concept that we support in principle, is being rushed in this way, without time to consult fully on or properly consider the areas of complexity and difficulty.”
The CIOT has particular concern around the treatment of subcontracting within the new system. David O’Keeffe explained:
“Introducing subcontracting rules (an area which has a high level of uncertainty and is a current area of contention in the SME regime) across the whole R&D regime risks exacerbating the uncertainty. It is crucial that the rules defining subcontracted R&D in the merged scheme are clear and unambiguous for taxpayers and for HMRC.
“In addition, many of our most innovative companies, from small start-ups to large multinational companies, provide services and products to others and, under the new system, will no longer receive a direct incentive to support the R&D they undertake. This will inevitably impact on investment decisions to undertake R&D in the UK. More time should have been allowed for an open discussion about the implications of the merged scheme for all different types of businesses. ”