Responding to Budget 2021, Jenny Tragner, director at R&D tax credit consultancy ForrestBrown and member of HMRC’s R&D Consultative Committee, says Chancellor Rishi Sunak’s announcements are overwhelmingly positive for R&D incentives.

“This year’s Budget has clearly shown that the Chancellor is striving to create the right conditions to support investment and private sector growth – in turn spurring innovation, driving creativity and creating jobs.

“We welcome the Chancellor’s move to launch a wide-reaching consultation to make sure that R&D tax relief is internationally competitive to ensure that high growth, innovative companies reap the rewards.

“For too long, the R&D tax credit system has been faced with increasing complexity and we have long called for a proper review in place of the previous piecemeal changes which drive complexity and uncertainty. The review will consider a much needed modernisation of the definition of R&D and qualifying expenditure categories, as well as seeking practical recommendations on dealing with the problem of spurious advisers. This is something which needs to be tackled urgently – and is something we’ve called for repeatedly. Administration of the incentives could also be vastly improved to provide more certainty for businesses, and we would urge HMRC and advisers to work together more effectively to improve the quality of external advice available to companies.

“The Chancellor’s announcement to increase the rate of Corporation Tax to 25% was not unexpected, however delaying its commencement to 2023 is welcomed. It should be remembered that this increase will only affect profitable businesses, which means those that have either been less impacted by Covid or who recover quickly from the pandemic. Meanwhile, for those needing more time to recover, it provides a long runway for many smaller businesses needing time to get back on their feet following the fallout of the pandemic. What’s more, the increase in loss reliefs, which will be introduced immediately, will help support the cash flow of loss-makers thanks to added generosity and should be seen as an attempt to soften the blow of the future tax rate increase.

“Finally, another important move for businesses is the Chancellor’s announcement of a new 130% upfront capital allowances “super deduction” tax incentive. This will encourage investment in new plant and machinery assets. It is nowhere near as generous as the CBI campaigned for – they recommended including capital expenditure within the remit of R&D tax relief – but shows that the Chancellor has listened and chosen his own route which will still go some way to helping businesses out – particularly those in the manufacturing sector who typically have high capital investment.”