Budget 2020: Positive News on Research & Development (R&D) Tax Relief and Capital Allowances

The Budget made it clear that the UK’s success in the global economy will be rooted in innovation and cutting-edge technology. Plans to significantly increase public R&D investment to £22 billion per year by 2024-25 were confirmed, increasing direct support for R&D to 0.8% of GDP which places the UK among the top quarter of OECD nations.   

Acknowledging that achieving the Government’s ambitions on R&D will require investment from the private sector, the Chancellor announced the following to stimulate R&D spend in this sector: 

• The R&D Expenditure Credit (‘RDEC’) rate will increase from 12% to 13% on expenditure incurred post 1 April 2020, meaning the RDEC will be worth up to 11p for every £1 spent on qualifying expenditure. Although RDEC is predominantly a large company incentive, certain SME’s can fall within the regime, for example if they are in receipt of funding for their R&D activity. 
• The introduction of the PAYE cap on the payable tax credit for SME R&D claimants will be delayed by 1 year until 1 April 2021. Current proposals that limit the credit that a loss-making business can receive to three times the company’s total PAYE and NICs liability for that year will be looked at again to ensure genuine SME R&D claimants will not be unfairly impacted. 
• A consultation on whether the existing qualifying cost categories should be expanded to include expenditure on data and cloud computing. 
• One further change that may impact R&D claimants relates to legislation on workers provided through intermediaries, commonly referred to as IR35. These rules may impact qualifying R&D expenditure in respect of Externally Provided Workers (‘EPWs’). It is expected that changes will be made to the qualifying cost category rules to ensure that businesses can continue to claim R&D tax relief on such costs.    

The Budget also announced a welcome increase to the capital allowances Structures and Buildings Allowance (‘SBA’) rate from 2% to 3%, applicable to expenditure post 1 April 2020 on non-residential structures and buildings. 

It was also announced that expenditure on low CO2 emission cars, zero-emission goods vehicles and equipment for gas refuelling stations will continue to qualify for 100% first year capital allowances for expenditure incurred before 31 March 2025. However, the threshold at which low CO2 emission cars are eligible for this allowance will reduce from 50g/km to 0g/km. 

Finally, the enhanced relief for capital expenditure incurred by companies on plant and machinery for use primarily in designated assisted areas within Enterprise Zones has been extended until at least 31 March 2021. This allows relief to be claimed for 100% of the expenditure in the year it is incurred. 

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