The recently published U.K. Budget demonstrates the continued importance that global governments place on incentives and grants to boost productivity and economic growth. The U.K. Budget announced a fundamental review of Research and Development (R&D) tax credits, including a wide-ranging consultation that seeks the views of stakeholders, including taxpayers and tax advisors, and is broad in scope, encompassing the structure and administration of the incentives; the nature of eligible activities and the qualifying cost categories in support of those activities; and whether the relief could be better targeted with respect to both international competitiveness and to maximizing the contribution of private sector activity to the U.K.’s economic goals. The goal of the consultation, which will close on June 2, 2021, is to help ensure that the U.K.’s R&D tax incentives remain up-to-date, competitive, and well-targeted in their support of private-sector investment in the U.K. We anticipate the outcome of the review will significantly impact R&D claims in the U.K., irrespective of the claimant’s industry sector or size.

The current HMRC R&D tax credit was established over 20 years ago. Since then, the U.K. revenue authority (branded as the HMRC) has introduced a number of measures to reduce the administrative burden of making R&D claims. Over the past several years, the amount of R&D claimants and the benefits associated with such claims have had double-digit growth. Statistics for the latest year alone indicate that £5.3 billion of tax benefits have been received by nearly 60,000 claimants. Against this background, there has been increased unease from the government, industry, and tax advisers on the effectiveness of the scheme to encourage discretionary R&D activity, as well as the administration and control of the program.

A&M is pleased with both the renewed commitment to incentivize private-sector investment in R&D and the recognition of the need for reform to maintain the U.K. as a global leader in science and innovation. While the principles that drove the establishment of these government incentives 20 years ago are still valid, in the fast-paced world of R&D, there is clear evidence of the need for a refreshed approach. A comprehensive consultation is an ideal post-Brexit opportunity for all stakeholders to shape the regime to serve these aims better.

A&M will be engaging with companies that have a U.K. presence to gather responses to the consultation. If you would like to provide input through the consultation process and help devise a better U.K. incentives regime, please contact Paul Wong in our London office or Kathleen King in our Washington, D.C. office.