93% of Yorkshire businesses set to be impacted by R&D tax reform

Romane Reeves

Ninety-three per cent of Yorkshire business leaders will need to rethink their tax and innovation strategy as the Government has confirmed new R&D tax relief rules, first announced in the Budget, according to new research from accountancy firm, BDO.

The bi-monthly Rethinking the Economy survey of 500 leaders of medium-sized businesses reveals the significant proportion of Yorkshire businesses that will be impacted by the announcement which aims to target abuse, improve compliance and drive UK innovation.

Experts warn that without forward planning and a holistic tax strategy, this could have substantial implications on business’ cashflow and moreover for innovation in UK businesses and particularly in the regions.

Romane Reeves, associate tax director, BDO Leeds, said: “There’s little doubt that the Government’s motivation for overhauling the R&D tax relief rules is to drive innovation in the UK and better govern genuine UK R&D. While at a policy level this makes sense, the impact on businesses could be significant unless they prepare in advance for the impending changes.”

He added: “The 93 per cent of Yorkshire businesses with overseas R&D will need to consider modelling the impact of these tax changes on their R&D claim. This will allow them to truly understand the net cost of innovation for future R&D now the detail has been announced. Of course, the greatest cost to UK businesses could be that  companies invest less in R&D overall as they’re not able to transfer the current level of investment into the UK.”

ONS figures estimate that approximately £25.9 billion of the £47.5 billion of R&D investment in 2019 was in the UK with the remainder spent overseas.

Terry Jones, tax partner and head of BDO in Yorkshire and the North East, said: “For business leaders, this isn’t a case of just re-looking at their approach to R&D. Companies need to take a strategic approach and consider the detail of these changes and whether a restructure is required.

“There are several corporate tax considerations, such as whether onshoring would result in a transfer of IP, whether transfer pricing is impacted, and any overseas entities need to be liquidated. The good news is there is time to get into the detail, but this needs to be a priority for leaders in the new year.”

Businesses have struggled with staff shortages over the past 12 months and BDO’s most recent data showed 83 per cent of Yorkshire businesses are already planning to increase their use of contractors to bridge the skills gap next year. Jones said skills shortages could also be a considerable barrier to onshoring effective R&D.

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