By Nigel Holmes, Senior Tax Specialist at Catax
Introduced by our Senior Tax Specialist, Nigel Holmes, Tax Talk offers a deep-dive view on different topics throughout the year.
This special edition looks at the Budget which was announced yesterday, and how this will affect the Research & Development and Capital Allowances tax reliefs.
R&D Tax Relief:
In order to prevent fraudulent claims of R&D tax relief (which HMRC estimates amounts to around £300m), it will re-introduce, from 1 April 2020, a cap on the payable credit for loss-making companies. This cap used to exist at the company’s PAYE and NIC liability for the period. The new cap will be three times the company’s PAYE and NIC liability. HMRC will consult on this.
This will have an adverse effect on companies making genuine claims where their qualifying costs are predominantly subcontractor costs or materials and where the overall payroll cost is low.
It does seem to send the wrong message for start-up companies.
The £200,000 Annual Investment Allowance, which has not fluctuated for a few years now, is to increase to £1m for two years from 1 January 2019. This, no doubt, will lead to more complex transitional rules.
This will be good news on Capital Allowance claimants purchasing or developing commercial property after 1 January 2019 who are able to make an embedded capital allowance claim. On the flip side, Research and Development Allowances will decrease in many cases.
A new Capital Allowance for non-residential structures will be introduced at 2% per annum, with the Special Rate Pool decreasing from 8% to 6% to compensate. The new rate appears to be for new builds only, for contracts entered into from today, and the reduction in the Special Rate Pool applies from April 2019.
Finally, Enhanced Capital Allowances for Energy and Water Saving technologies will be abolished in 2020.
Please contact me if you have any queries on the above.