UK universities are set to lose a tax break worth millions of pounds following this month’s summer Budget.
Universities have been eligible for the Research and Development Expenditure Credit since it was established in 2013.
The measure was introduced to encourage large companies to carry out more research and development in the UK. According to a presentation given by the accountancy firm PwC to the annual British Universities Finance Directors Group tax conference in June, the measure gives companies a 10 per cent credit on their R&D costs from 1 April 2013, increasing to 11 per cent from 1 April 2015.
Bob Rabone, chief financial officer at the University of Sheffield and chair of the BUFDG, estimated that the credit was worth between £3 million and £5 million a year for a typical research-intensive institution. That would add up to an annual tax saving of around £100 million for the 24 Russell Group universities alone.
Unlike the previous “super-deduction” from tax liability, which the RDEC replaced, the credit is available even to companies that have no liability to corporation tax in the UK, and so functions more like a grant. Universities were not able to claim the super-deduction, but the government says “a number” have applied for the RDEC.
According to PwC, the credit can be sought on any projects that aim to “achieve an advance in science or technology”. “Qualifying expenditure” includes staff costs, and “consumables” such as power and “materials and equipment used up in the R&D activity but not incorporated in the product of the R&D”.
However, the chancellor’s summer Budget document describes the eligibility of universities and charities for the RDEC as an “anomaly”. It says the Summer Finance Bill will close the loophole “in line with the original intention of the policy”, effective from 1 August.
Mr Rabone said that the announcement “has clarified the future availability of this credit, but for now I understand that those [higher education institutions] that believe they have claims, have (or will be) submitting them”.
A seperate government document confirms that claims for expenses incurred before 1 August will be granted. It estimates that the rule change will “affect [fewer] than 50 universities and charities who are currently claiming under the current rules”.