Draft Finance Bill 2013: A mixed bag for R&D – Ernst & Young
Frank Buffone, Research & Development tax partner at Ernst & Young, commented:
“In the draft Finance Bill issued today, the Treasury has showed its continued commitment to R&D and proved that it has listened to the opinions from industry. These changes have been a long time coming and will provide much needed impetus for the economy.
“However it’s not all good news. The Government is intending to limit the amount of payable credit to the amount of a company’s PAYE/NIC liabilities- in relation to staff engaged in qualifying R&D activities in the accounting period. This significantly waters down the benefit of the repayable credit to companies. The excess of the credit due can only be treated as an above the line credit in the following accounting period.
Large manufacturers with large amounts of consumables will be severely impacted.
“An ongoing bone of contention is the rate of R&D relief in the UK. A single digit rate will not have the impact that the UK is looking for, particularly when compared to more favourable packages in countries like France and Ireland.
“The biggest losers from today’s draft legislation will be the aerospace & defence sector. However, HMRC have indicated that this is currently being assessed and amendments to the MOD pricing regulations will take effect from 1 April 2016 at the earliest.
“The announcement that the current superdeduction scheme will run until 1 April 2016 must also come as some relief to these companies. The Above The Line (ATL) scheme will be introduced for expenditure incurred on or after 1 April 2013 and companies are expected to elect into this regime. The ATL regime will completely replace the superdeduction scheme from 1 April 2016.
“The biggest challenge facing HMRC will be the step change required to assess and agree R&D claims in a timely basis. How HMRC will resource this, and given that they are currently using the R&D specialist units to assess the patent box, remains to be seen.”