The Reality of R&D Tax Relief in the UK & Ireland

In the first edition of our Amplifi Asks series, Andrew Cowan, Technical Director at Amplifi Solutions, explores the evolving R&D tax relief landscape in the UK and Ireland. He discusses the challenges UK businesses face with new reforms, the opportunities in the merged scheme, and the impact on innovation. Andrew also covers the positive changes to Ireland’s R&D tax credits and the challenges Irish innovators encounter.

Andrew Cowan

Technical Director

A Chartered Accountant and Prince2 practitioner, Andrew has over 20 years of consulting knowledge from a diverse range of businesses and extensive experience in the field of digital transformation and systems implementation.

R&D Relief in the UK

A State of Uncertainty and Change

While there is appreciation for the role of R&D tax relief in supporting innovation, we are seeing that there is also frustration with the increased scrutiny and complexity of the claims process.

Businesses and tax professionals are adapting to the new rules and increased compliance measures, which has led to a more cautious approach to claiming R&D tax relief.

The public opinion seems to be that while R&D tax relief is valuable, the system needs improvement to balance encouraging innovation with preventing abuse.

Supporting R&D Is Still a UK Government Priority

On the plus side there is recognition that R&D tax reliefs are important incentives for businesses to invest in innovative projects in science and technology. The government’s target to raise R&D investment to 2.4% of UK GDP by 2027 indicates a commitment to fostering innovation.

The latest HMRC statistics show that R&D expenditure by businesses increased by 4% to £46.7 billion, suggesting that the incentives are encouraging more investment in R&D.

The Key UK R&D Concerns and Challenges

Compliance Issues – There is growing concern over non-compliance in R&D tax reliefs. HMRC has been increasing its scrutiny of claims.
Difficulty in Claiming – Many businesses, are struggling to make “successful” claims. For example, a recent survey showed that 76% of media businesses that made R&D claims faced challenges or rejections from HMRC.
Reduced Benefits – The new incoming merged R&D regime offers a reduced credit rate over the old SME scheme, which some fear may reduce the UK’s competitiveness compared to other countries like Ireland.
Complexity – The process of making R&D claims has become more complex, leading to a need for specialist advice to ensure claims are ‘watertight’.

The Merged R&D Scheme – A Step Towards Clarity

Looking ahead, businesses appear to have mostly positive perceptions of the new “merged scheme” known as RDEC and it’s sibling, the ERIS (Enhanced R&D Intensive Support) schemes.

Simplification – The merger of previous schemes into a single RDEC scheme for all companies is seen as a simplification of the R&D tax relief system.
Support for R&D-Intensive SMEs – The ERIS scheme is viewed positively by loss-making, R&D-intensive SMEs, as it offers a higher rate of tax relief (up to 27p for every £1 spent on R&D).
Grants and Subsidies – Companies welcome the removal of complications related to grants and subsidies, as they can now claim under RDEC or ERIS regardless of grant funding.

R&D Relief in Ireland

The current sentiment surrounding R&D tax relief credits in the Republic of Ireland is generally positive, with recent enhancements aimed at boosting innovation and attracting investment. The government has shown a commitment to improving the R&D tax credit scheme, as evidenced by several key developments:

Increased Tax Credit Rate – The R&D tax credit rate has been increased from 25% to 30% for R&D activities conducted after January 1, 2024 for small businesses.
Enhanced Cash Flow Support – The first-year payment threshold for the R&D tax credit has been increased from €50,000 to €75,000 in the 2025 budget, providing additional cash flow support to companies undertaking smaller R&D projects or new claimants.
Positive Impact on Innovation – The R&D tax credit program is seen as significant for Ireland’s innovation landscape, attracting investors, skilled workforces, and boosting the overall economy.

The Key Ireland R&D Concerns and Challenges

However, there are some concerns and areas for improvement:

Administrative Burden – Some industry figures warn that the updated guidelines might put an extra burden on applicants, especially SMEs, due to increased administrative requirements.
Accessibility for SMEs – There is a belief that more could be done to make the scheme both more attractive and accessible to SMEs. 86% of respondents in a recent survey think a simplified and more generous SME regime would lead to increased R&D and innovation spending.
Calls for Further Enhancements – There are suggestions to increase the R&D tax credit to 35% and shorten the refund timeline from three years to two, which would provide a significant boost to businesses and help secure the long-term future of key economic sectors.

Overall, while the sentiment is positive due to recent improvements, there is still a desire for further enhancements to make the R&D tax relief credits more accessible and beneficial, particularly for SMEs.

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