Catalyst Solutions Strengthens UK R&D Tax Credit Expertise with R&D Tax Community Certification
That’s why we’re proud to share that we’ve recently completed a comprehensive course through the R&D Tax Community, a specialist platform dedicated to raising professional standards across the industry.
Why UK R&D Tax Credit Reforms Make Ongoing Training Essential
The UK’s R&D Tax Credit landscape is changing rapidly. From the merging of the SME and RDEC schemes, to stricter compliance rules, digital submission requirements, and the new pre-notification obligation, the past 12 months have seen an unprecedented level of reform.
At the same time, HMRC has significantly increased scrutiny, aiming to reduce abuse and improve claim quality. As a result, R&D advisors need to demonstrate a much deeper understanding of both the legislation and the scientific criteria that underpin qualifying claims.
How the R&D Tax Community Course Improves R&D Claim Quality
The course offered by the R&D Tax Community is one of the most respected in the sector, focusing not just on the legislation but also on best practice in:
- The underlying science in R&D, including borderline and high-risk cases
- Best practice record‑keeping to support claims under audit
- Up‑to‑date insight into HMRC’s latest guidance and their approach to enquiries
For us, this wasn’t just a box-ticking exercise – it was an investment in our clients. In a climate where claimants face more risk than ever, having a qualified and well-informed advisor can make the difference between a successful claim and a costly rejection.
Catalyst Solutions’ Commitment to R&D Tax Compliance Excellence
We’re not simply reacting to change – we’re proactively adapting.
We take pride in offering our clients peace of mind, knowing that their claims are not only optimised but defensible. Completing this course reinforces our commitment to technical excellence, compliance confidence, and client-first service.
If you’re navigating the complexities of R&D Tax in the UK or abroad, let’s talk about how Catalyst Solutions can support your innovation journey with clarity, precision, and the latest expertise.
Climate Change Bill Signed into Law
Perhaps most importantly, it serves as the basis upon which future regulation will be released meaning that we can expect to see more climate-related regulation in future. Key highlights of the Act are given below:
i) Mandating Carbon Budgets:Provision is made in the Act for the introduction of mandated carbon budgets. Up till now, carbon budgets have been strictly voluntary, with no associated penalties for exceeding allocated budgets.
In fact, those companies voluntary participating have been allowed 5% off their carbon tax liabilities. This will all change. We anticipate that, now that the Climate Change has been signed, regulation will be released governing who is subject to these budgets, how the budgets are set and what penalties are incurred for exceeding the budgets.
Already, in the 2024 Budget Review, National Treasury makes mention of a R640 penalty for every tonne CO2e emitted above the allocated budget, significantly more than the carbon tax rate. This penalty will most likely be built into the Carbon Tax Act and the 5% carbon budget reduction or allowance currently in place for those with a voluntary carbon budget will be removed.
ii) Mitigation Plans: Companies who have been allocated a carbon budget must prepare and submit a GHG mitigation plan to the Minister for approval. This plan should describe the mitigation measures which the company proposes to implement to remain within its allocated carbon budget. This is similar to the Pollution Prevention Plans currently in place. However, we will probably see greater alignment between carbon budgets and mitigation plans in future.
iii) Sectoral Emissions Targets: Some sectors will also be allocated sectoral emission targets. Within one year, the Minister of DFFE is required to list the GHG emitting sectors and sub-sectors that will be subject to sectoral emissions targets. The Ministers responsible for the administration of these sectors or sub-sectors will be responsible for implementing the targets through planning instruments, policies and programmes. As such, companies in these sectors will probably see more emission reduction requirements in future.
iv) Listed greenhouse gases and activities: The Minister of DFFE must publish a list of GHGs which the Minister reasonably believes cause or are likely to cause or exacerbate climate change. Those companies releasing these GHGs may be assigned a carbon budget, if they exceed certain thresholds. They will also be required to submit mitigation plans to the Minister.
v) Phase-down and Phase-out of Synthetic GHG Emissions and Declaration: The Minister of DFFE must declare certain GHGs to be synthetic GHGs and specify whether these gases are required to be phased out or phased down and by when. In addition, the Minister of DFFE can also prescribe thresholds for use of these synthetic GHGs. The Minister may also allocate a carbon budget to companies that conduct activities that result in synthetic GHGs.
vi) Sector-Specific Collaboration: Within two years, the Minister of DFFE is tasked with developing a national adaptation strategy which requires collaboration with other ministries and departments such as water resources; agriculture and food production; forestry and fisheries; human health; energy generation; industry; human settlements and migration; disaster management; biodiversity and terrestrial ecosystems. Each sector will devise its own adaptation plans as part of a unified national strategy.
vii) Transforming the Presidential Climate Commission (PCC): Under the new law, the PCC will transition into a statutory body which will oversee South Africa’s national climate efforts and ensuring alignment with international commitments.
viii) Role of Provinces and Municipalities: The Bill places more obligations on provincial governments and municipalities. The Provincial and Municipal Forums on Climate Change would be tasked with coordinating climate change response activities within the relevant province or municipality. Each Municipal Forum on Climate Change would be required to provide a report on its climate change response actions to the relevant Provincial Forum on Climate Change. The Provincial Forums on Climate Change would then be required to provide a report to the President’s Co-ordinating Council regarding the climate change response actions and considerations in the various provinces.
Catalyst Solutions is closely monitoring these developments and will keep our clients updated. Please reach out to us if you would like to discuss how these changes may impact your business and where Catalyst Solutions can provide support from a general GHG emissions, carbon budgets, mitigation plans or carbon tax management point of view.
2022 Budget Speech Observations
The Minister of Finance, Mr. Enoch Godongwana, presented National Treasury’s annual 2022/23 budget earlier this afternoon. We set out below the most notable observations from a business incentives and environmental taxation point of view.
Business Incentives Updates
Research and Development – The R&D tax incentive is being extended in its current format from 30 September 2022 to 31 December 2023. During this interim period, a workshop will be held to discuss potential changes and improvements to the tax incentive, the results of which will be made known in the 2022 Taxation Laws Amendment Bill due out later this year. In the meantime, the supercharged 150% deduction continues on a pre-approval basis making it critical for companies to continue submitting applications for the incentive.
Section 12L Energy Efficiency Tax Incentive – It is proposed that the Energy Efficiency Tax Incentive be extended to 31 December 2025.
Youth Employment Initiatives – An amount of R18.4 billion is allocated to support youth employment under the presidential employment initiative. Over the medium term, an anticipated R1.7 billion will also be spent on Jobs Fund (current open call for proposal closing on the 28th of March 2022). The DTIC has been allocated R1,5 billion for the social employment programme.
Employment Tax Incentive (ETI) – The maximum monthly ETI value per employee will be increased by 50% to R1 500. Given the abuse of employment tax incentives, government also proposes amendments to the Employment Tax Incentive Act (2013) to impose understatement penalties on reimbursements that are improperly claimed.
Review of existing incentives – In line with recommendations from the Katz Commission as well as the Davis Tax Committee, incentives that have not widened social or economic benefits will not be renewed and those that are considered effective will be retained and potentially redesigned to further improve performance.
Department of Trade, Industry and Competition (DTIC) Programmes – Ongoing support will be provided to the Automotive Incentive Scheme, Special Economic Zones, Global Business Services Incentive, Film and Television Production Incentive, the Black Industrialist Programme, the Agro-Processing Support Scheme, the Strategic Partnership Programme, the Clothing and Textiles Programme and the Aquaculture Development and Enhancement Programme.
Blended Finance – R6.8 billion has been allocated to the agriculture industry in the form of blended finance programmes, farmer development and post‐settlement support initiatives.
Tourism Equity Fund – The Department of Tourism will allocate R360 million over the medium term to support the pilot phase of the Tourism Equity Fund introduced in 2021.
Carbon Tax-Related Updates
The following changes to the carbon tax are applicable to 2022:
- The carbon tax rate will increase from R134/tonne Carbon Dioxide Equivalent (tCO2e) to R144/tCO2e from 1 January 2022.
- The carbon fuel levy will increase by 1c to 9c/litre for petrol and 10c/litre for diesel from the 6th of April 2022.
- A proposal has been made that the carbon tax cost recovery quantum for the liquid fuels refinery sector increases from 0.56c/litre to 0.63c/litre from the 1st of January 2022.
In terms of Phase 2, it must be noted that Phase 1 of the carbon tax will be extended to the 31st of December 2025. As such, the introduction of Phase 2 of the carbon tax has been delayed. Phase 1 was scheduled to come to an end at the end of this year, but it will be extended until the end of 2025.
However, we can expect the following changes to be made to the carbon tax from the 1st of January 2023:
- Adjusting the threshold for the maximum trade exposure allowance from 30% to 50%. This means that only those sectors with a trade exposure above 50% will be able to access the full 10% trade exposure allowance. Previously, it was those sectors that had a trade exposure above 30%.
- Given that mandatory carbon budgets will come into effect from the 1st of January 2023 for some sectors, National Treasury has noted in the Budget Review that it will remove the 5% carbon budget allowance. It will also penalise those companies that exceed their mandated carbon budgets. National Treasury proposes a carbon tax rate of R640/tCO2e for those Greenhouse Gas (GHG) emissions that exceed the budget.
- The Carbon Tax Act currently makes provision for taxpayers conducting electricity generation activities to offset the costs of purchasing additional renewable electricity against their carbon tax liability. This has been extended until the 31st of December 2025. However, it will be limited to the carbon tax liability associated with the combustion of fossil fuels of electricity generators and will not be used to offset the total carbon tax liability of these generators.
National Treasury aims to introduce a limitation on what can be claimed as sequestration under the carbon tax. It proposes to allow sequestration for only those activities within the operational control of a taxpayer. The plan is for this to take effect from the 1st of January 2022.
In terms of the future of the carbon tax:
- Government proposes to increase the carbon tax rate each year by at least 1 USD/tCO2e, to reach 20 USD/tCO2e by 2026. From the start of the second phase, now the 1st of January 2026, government proposes to increase the carbon tax rate more rapidly each year, to at least 30 USD/tCO2e by 2030. Thereafter, it proposes to accelerate this even more by 2035 and then 2040 and finally to a carbon tax rate of up to 120 USD/tCO2e by 2050.
- Furthermore, it plans to reduce the basic tax-free allowances that are currently in place. It is anticipated that these reductions will come into play from the 1st of January 2026, Phase 2 of the carbon tax.
- Government plans to increase the carbon offset allowance by 5% from the 1st of January 2026 to encourage investment in carbon offset projects.
The above will be taken into consideration as part of the second phase of the carbon tax review process.
Environmental
- Government plans to investigate an upstream plastic tax and a tax on single-use plastics.
- Increases were announced for the plastic bags levy, the vehicle emissions tax and the incandescent lightbulb levy (effective from the 1st of April 2022).
Concluding Comments
We welcome the proposal for the extension of the section 11D R&D and the section 12L Energy Efficiency Tax Incentive sunset clauses.
Carbon tax will progressively increase over the coming years whilst the allowances will be reduced and phased out over time. Companies have to place a strategic focus on reducing greenhouse gas (“GHG”) emissions otherwise face the risk of a heavily increasing carbon tax liability going forward. In the shorter term, companies must take advantage of the current saving opportunities on offer in the form of carbon tax allowances, sequestration and benefits claimable under the section 12L energy efficiency tax incentive.
For additional information please feel free to contact:
Christo Engelbrecht
christo@catalystsolutions.co.za
+27 84 513 8177
Amendments to the Carbon Offset Regulations
The main changes are summarised below –
Carbon Offsets and Section 12L
Previously, the regulations created some confusion as to whether a taxpayer could claim both section 12L and the carbon offset allowance. The amendments clarify that a taxpayer can claim both, but not for the same project.
The wording has been amended to state that a taxpayer may not receive an offset allowance for a project for which any section 12L allowance has been received.
This is good news for taxpayers. It means that taxpayers can legally make use of section 12L and the carbon offset allowance. They just need to make sure that the two are not claimed on the same project.
Timing
For offset projects that became subject to the carbon tax when it was introduced, the amendments clarify that a carbon offset in respect of an approved project in existence prior to 1 June 2019 can be used in Phase 1 of the carbon tax. It states that these carbon offsets need to be used on or before 28 July 2023 which is the deadline for the submission of the 1 January to 31 December 2022 carbon tax account to the South African Revenue Service (SARS).
For further information or if you are interested in discussing these opportunities, please feel free to contacting either Joslin Lydall or Josh Bersiks from Catalyst Solutions.
joslinl@catalystsolutions.co.za
+27 84 299 6873
josh@catalystsolutions.co.za
+27 82 842 7310
Section 12L Sunset Clause
What is section 12L?
Section 12L of the Income Tax Act No 58 of 1962 (section 12L) is an energy efficiency tax incentive. Under section12L, a taxpayer can claim for energy savings for a period of 12 months from a specific energy efficiency project.
Section 12L offers taxpayers a tax deduction of 95 cents per kilowatt hour saved. The cash benefit is then calculated as the 95 cents per kWh multiplied by the corporate tax rate.
The benefit can be claimed for any form of energy savings (i.e. electricity, coal, natural gas, diesel, petrol, heavy fuel oil, etc.). It is claimable for both greenfields and brownfields projects.
Why do you need to know about it now more than ever?
Currently, section 12L is only claimable for tax years of assessment ending before 1 January 2023. This means that a taxpayer can claim the tax incentive up to their last financial year ending before 1 January 2023.
As an example, if a taxpayer has a June year-end, the last period for which the taxpayer would be eligible to claim the section 12L tax incentive would be for energy savings achieved between 1 July 2021 to 30 June 2022. This means that to claim the full 12-month tax benefit, the taxpayer would have to implement and commission the energy efficiency project by 1 July 2021 so that the energy savings would be realised from 1 July 2021 until 30 June 2022. If energy savings projects are commissioned later in the tax year, this would mean that taxpayers may not being able to claim the full 12-month tax benefit for energy savings achieved.
The possible extension of the section 12L sunset clause date will be contingent upon a review conducted by National Treasury and the relevant stakeholders in parallel with the carbon tax review to be conducted in 2022. If this deadline is not extended, it means that limited time remains for taxpayers to make use of this tax incentive. In other words, the time is now! Taxpayers need to focus on utilising this benefit now before it is too late!
In addition, according to National Treasury, Section 12L was also introduced as one of the ways in which to recycle the revenue from the carbon tax. As such, carbon taxpayers should be trying to maximise the benefit from section 12L as much as possible before it comes to an end.
What else do you need to know about section 12L?
Although there is this sunset clause on section 12L, it is important to remember that section 12L can be claimed retrospectively for energy savings realised from energy efficiency projects already implemented. Taxpayers that have already implemented energy efficiency projects but have not yet claimed section 12L on the energy savings from these projects should consider doing so.
Contact Catalyst Solutions if you have implemented or are planning to implement an energy efficiency project and are interested in accessing the section 12L incentive.
wiehanp@catalystsolutions.co.za
084 517 7822
christo@catalystsolutions.co.za
084 513 8177
SA world’s 47th most innovative economy
South Africa ranks 47 in the world in terms of innovation, according to the latest Bloomberg Innovation Index. South Korea took first place, followed by Singapore, Switzerland and Germany.
While slowly improving year on year (South Africa ranked 51 in 2019 and 50 in 2020), and the only African country to be featured in the top 60, a lot more needs to be done to compete with bigger economies.
The innovation index measures countries based on seven criteria: Research and development intensity, productivity, patent activity, concentration of researchers and tertiary efficiency, hi-tech density, and value-added manufacturing.
The index found that South Africa has a relatively high rate of patent activity (Annual patent filings, patent grants and patent in-force per population), ranking 28th in the world. It also performed ahead of the likes of Spain, the UAE, Argentina, and India for high-tech density (the number of domestically domiciled technology oriented public companies), ranking 34th.
South Africa significantly lags in terms of researcher concentration (Professionals including post graduate PHD students involved in R&D per population and tertiary efficiency), ranking 57. It also almost came last in its tertiary efficiency (Total enrolment in tertiary education), ranking 58.
Greater awareness needed
Dov Paluch, Managing Director at Catalyst Solutions, says improving South Africa’s innovation ranking boils down to more clarity on R&D incentives. There are only about 8 approved R&D applications a month in the entire country according to the DSI.
“At the heart of these issues is a lack of understanding on what constitutes innovation. The definition of innovation is not confined to laboratories, ground-breaking inventions, and miracle cures. Better awareness and understanding of R&D incentives, not only tax incentives but more direct cash incentives, is therefore needed to encourage further R&D activity.”
He says government can do a lot more to incentivise the loss-making SME market to do more R&D.
“ In many other countries like Australia and the UK, loss making companies can ‘surrender’ their tax deduction for a cash payment. This could go a long way to stimulating smaller companies to do more R&D in South Africa.”
Innovation vital to SA’s economic recovery
Dov says the COVID-19 pandemic has further stressed the vital role innovation and research and development plays in creating a resilient and productive economy .
“In the rapidly changing business environment caused by COVID-19, companies across South Africa are asking themselves what they need to do to gain an advantage in the marketplace in order to compete and win new business. With this in mind, companies are seeking to innovate now more than ever.”
He says raising awareness on the R&D tax incentives available to business in the current environment has never been more important.
“R&D tax relief can be a highly valuable missed opportunity for businesses who often undertake an innovative scientific or technological project advancing their business, without realising the activity could actually qualify for relief. Government and stakeholders therefore need to urgently step up their focus on raising awareness of the R&D tax credit with a particular focus on the aspects which seem to be confusing or poorly understood. In doing so, they could help set South Africa on a critical and much-needed path to economic recovery.”
