Sabina Burke, Tax Consultant at CBW, discusses whether companies should delay significant R&D expenditure until after the Budget.
Large company R&D relief takes the form of an R&D expenditure credit, which is currently 12% for expenditure incurred on or after 1 January 2018. The Government’s manifesto proposes that the Chancellor will increase this rate to 13% in his Budget on Wednesday 11 March. It may therefore be beneficial for such companies to delay significant R&D expenditure until after the Budget to ensure they will qualify for the higher rate of 13%. Whether these changes will apply from Budget Day or 1 April 2020 (or another date of his choosing) is currently unclear.
The manifesto also proposes a review of the definition of R&D to ensure that investments in cloud computing and data fall within its ambit; whilst CBW have already taken the view, in a number of cases, that these activities can qualify, this clarification is welcome. Companies operating in this sector may therefore wish to consider delaying significant expenditure until after the Budget, as expenditure that might not have previously qualified, may benefit from R&D tax relief after 11 March. Although these changes may, of course, only be introduced for a later tax year.
While this also sounds like good news, there is also the other side of the coin for both of the possible changes above: such a delay, particularly in the cloud and data spaces, could cost a company its competitive advantage, as others overtake while they are ‘parked up’ in the hope that these proposals will come into play fairly immediately.
Whilst the changes announced in the manifesto are potentially very exciting, they also come with a health warning. Please do not hesitate to pick up the phone and talk to Toby Hermitage or Sabina Burke to discuss how this could impact on your business.
The R&D team at CBW will obviously be on hand to unravel the detail and communicate exactly what the changes announced on Budget day will mean for our clients and contacts and please do not hesitate to contact us in advance of, or after the Budget.