Calls for Chancellor to enhance R&D Tax Relief

Calls for Chancellor to enhance R&D Tax Relief

A proposal of enhancing the Research and Development (R&D) Tax Relief Scheme has been published in a report* by economic public affairs specialist, WPI Strategy, and backed by the leaders of eight major trade organisations.

The modelling shows the suggested reforms, most notably, allowing the inclusion of capital expenditure in R&D tax claims, which would create £4billion of growth and 12,000 new jobs within 10 years. In addition, it could generate net revenue for the Exchequer within 7 years.

The proposals are considered as a step towards the UK Government’s manifesto of levelling up the country, increasing R&D investment and becoming a Science Superpower. The UK is still investing too little in R&D at 1.7% GDP in comparison to the EU average of 2.0% GDP. With the impact of the pandemic on businesses, the Government will need to make a considerable effort to reach their target of increasing R&D spend to 2.4% GDP by 2027.

Capital expenditure is a crucial part of innovation, with investment in machinery, new technology, factories and laboratories a requirement for many industries such as manufacturing. Yet the UK R&D tax legislation currently excludes these vital costs. Other countries such as France, Ireland, Japan and Spain allow for such expenditure to be included, giving their businesses a competitive advantage and making them a more attractive location for research labs and factories.

With capital expenditure being a particularly significant cost to the manufacturing sector, a change to include these costs as part of the R&D Tax Relief Scheme would have a proportionally higher benefit for the industrial heartlands of the UK.  For example, the manufacturing sector makes up 78% of R&D expenditure in the West Midlands in comparison to 25% in the South East. This increased investment will enable economic growth and a significant boost for jobs across all parts of the UK playing a key part in the levelling up of the nation.

Whilst some incentives currently exist through R&D capital allowances (RDA), there are flaws and inconsistencies for companies to utilise these fairly. It is proposed that the changes to include capital expenditure in the R&D tax claim would sit alongside the existing RDA policy, offering a much more attractive financial benefit to investing in R&D facilities and equipment, regardless of making a profit or loss.

The key outcomes predicted from the recommended reforms would be:

  • Increased R&D – supporting higher economic growth and greater tax revenue
  • The creation of thousands of additional high-value jobs every year
  • A more internationally competitive tax system

At Beavis Morgan, we support the proposed changes and can envisage significant benefits for our client base and the wider UK economy as a stimulus for investment and growth.  Our clients have already found the R&D Tax Relief Scheme extremely valuable and we encourage all businesses to consider their eligibility especially with the prospect of it becoming even more generous.

For further information about the R&D Tax Relief Scheme and any changes that may impact your business, please get in touch with Rebecca Heap via email

* Making the UK a science superpower – How enhanced R&D tax credits can support growth, jobs and levelling up. February 2021