Change to the rate of Research and Development Expenditure Credit for Corporation Tax
Published 11 March 2020
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This publication is available at https://www.gov.uk/government/publications/change-to-the-rate-of-research-and-development-expenditure-credit-for-corporation-tax/change-to-the-rate-of-research-and-development-expenditure-credit-for-corporation-tax
Who is likely to be affected
This change will affect companies that carry out Research & Development (R&D) and claim Research and Development Expenditure Credit.
General description of the measure
This measure increases the tax relief for large companies (and Small and Medium size Enterprises in some cases) that carry out qualifying R&D and claim Research and Development Expenditure Credit.
The Research and Development Expenditure Credit (also known as the ‘Above the Line’ credit) is a standalone credit that is brought into account as a receipt in calculating trading profits. The current general rate is set as 12% of qualifying R&D expenditure. This measure increases the rate of the Research and Development Expenditure Credit from 12% to 13%.
Policy objective
Increasing the amount of R&D carried out by companies is a key part of the government’s aim to increase productivity and promote growth.
R&D tax credits support business investment by allowing companies to claim an enhanced corporation tax deduction or payable credit on their R&D costs.
A rate increase of Research and Development Expenditure Credit from 12% to 13%, means that large companies can claim more support for their R&D, increasing the incentive to undertake R&D.
Background to the measure
This measure was announced at Budget 2020.
Detailed proposal
Operative date
The increase in the Research and Development Expenditure Credit rate will have effect for expenditure incurred on or after 1 April 2020.
Current law
Current law on the Research and Development Expenditure Credit is contained in chapter 6A of part 3 of Corporation Tax Act 2009.
Proposed revisions
Legislation will be introduced in Finance Bill 2019 to 2020 amending section 104M of Corporation Tax Act 2009.
Summary of impacts
Exchequer impact
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| - | negligible | -170 | -275 | -300 | -310 |
These figures are set out in Table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure will have a positive impact on business investment. A behavioural adjustment is made to account for a behavioural response of businesses increasing investment in R&D.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects businesses.
There is no impact on family formation, stability or breakdown.
Equalities impacts
After careful consideration, the government has concluded that it is not anticipated that there will be impacts on groups of people sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on administrative burdens for 7,000 businesses. One-off costs include familiarisation with the changes and updating systems to reflect the increased rate.
There will also be a one-off cost where some companies make claims for R&D activity where they have not previously done so or where companies begin R&D work where they have not done previously. It is not expected there will be any ongoing costs. Customer experience is expected to stay broadly the same, however this measure is expected to be welcomed by eligible businesses as they can now claim more support for their R&D.
There are no impacts on civil society organisations. This measure is expected to have a positive impact on over 7,000 businesses claiming the Research and Development Expenditure Credit. Increasing the rate will support business investment as companies can now claim more support for their R&D.
Operational impact (£m) (HMRC or other)
HMRC operational costs for this change are estimated to be £1.2 million.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, contact Yasmin Achha/ David Harris/Innovation & Growth team on Telephone: 03000 592 504 or 03000 586 834, or email: yasmin.achha@hmrc.gov.uk or david.harris@hmrc.gov.uk.