Policy paper

Corporation Tax: R&D tax credits - universities and charities

Published 8 July 2015

Who is likely to be affected

Universities and charities claiming the Research and Development Expenditure Credit (RDEC).

General description of the measure

This measure amends legislation so that universities and charities are unable to claim the RDEC, in line with the original intention of the policy. This is to ensure that the scheme remains effective and well-targeted to business Research and Development (R&D).

This measure relates to a university’s or charity’s own independent research, and also for the R&D they carry out as sub-contractors. This does not affect ‘spin out’ companies used by universities or charities to commercialise their research. This also does not affect any claims made to date, and universities can continue to claim for any qualifying expenditure they have incurred prior to 1 August 2015.

Policy objective

R&D tax credits are a key element in the government’s commitment to an internationally competitive tax system and in its objective for strong and sustainable private sector-led growth. This measure ensures that they remain well-targeted in incentivising business R&D investment.

Background to the measure

This measure was announced at Summer Budget 2015.

The government replaced the previous super-deduction for large companies with the RDEC in 2013. This was to encourage more R&D by large companies. By making the RDEC available to all large companies, including those with no liability to corporation tax, it was intended to make the benefits of R&D tax relief more visible and certain, compared to the previous super-deduction.

Universities and charities were never intended to claim the RDEC and were unable to claim under the previous large company scheme. However, HM Revenue and Customs (HMRC) have now received a number of claims from universities. This change amends the legislation so that it is in line with the original policy intention.

Detailed proposal

Operative date

This measure will have effect in relation to expenditure incurred on or after 1 August 2015.

Current law

Current law on the RDEC is set out in Chapter 6A of Part 3, Corporation Tax Act (CTA) 2009.

Proposed revisions

Legislation will be introduced in Summer Finance Bill 2015 to amend the qualifying conditions for RDEC in Section 104A CTA 2009. An institution of higher education or a charity will be ineligible to make a claim for the RDEC in relation to any expenditure incurred on or after 1 August 2015. The legislation will also confer on HM Treasury a power to define further categories of ineligible company via secondary legislation.

Summary of impacts

Exchequer impact (£m)	2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
	nil	nil	nil	nil	nil	nil
	This measure is not expected to have an Exchequer impact. This measure supports the Exchequer in its commitment to protect revenue.
Economic impact	This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families	The measure only applies to universities and charities carrying out qualifying R&D activities and so is not expected to have an impact on individuals, households or family formation, stability or breakdown.
Equalities impacts	This measure only applies to universities and charities carrying out qualifying R&D activities and so is not expected to have any equalities impacts.
Impact on business including civil society organisations	Charities will no longer be eligible for support under the schemes. It is estimated that this will affect less than 50 universities and charities who are currently claiming under the current rules. As this measure is an amendment to the existing schemes, it is unlikely that many eligible companies will face one-off and ongoing administrative costs in order to qualify for the relief, as they will already have some knowledge of the existing relief. For organisations that are no longer eligible for the relief, there will be some one-off costs involved in altering their approach. These costs are expected to be negligible.
Operational impact (£m) (HMRC or other)	There will be no significant impact on HMRC.
Other impacts	Small and micro business assessment: This measure has no impact on small and micro businesses. Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from tax returns and the HMRC Incentives and Reliefs units.

Further advice

If you have any questions about this change, please contact Aziz Yusuf on Telephone: 03000 544463, email:aziz.yusuf@hmrc.gsi.gov.uk.