R&D Changes – Autumn Statement
As an area that we specialise in, we paid particular attention to the R&D updates in the Autumn Statement.
Key announcements impacting R&D Tax Relief Claims were as follows:
- The SME deduction rate has unfortunately been reduced to 86% (down from 130%), and the tax credit rate has been reduced from 14.5% to 10%.
- Large company schemes or select SMEs in receipt of Research Development Expenditure Credits(RDEC) will benefit from an increased rate of 20% (up from 13%). As the credits are subject to corporation tax, likely 25%, the true benefit is net of the corporation tax charged on the income received.
This reform improves the competitiveness of the RDEC scheme; however, it does reduce the benefit for those claiming under the SME scheme which makes up the largest proportion of claimants.
When do these changes come into force?
For expenditure incurred on or after 1 April 2023.
Although it would appear that these changes are resulting in reduced savings, it remains a highly beneficial scheme available to innovative companies since more often than not, this expenditure would take place regardless of the scheme being in place. Therefore, it’s still additional corporation tax relief for this expenditure, albeit at a lower rate.
For companies exceeding certain profit levels from next April, the corporation tax rate is set to rise from 19% to 25%, therefore, the 86% deduction can still result in significant savings for investing in innovation, and thus the changes are not as significant where your company is profitable.
|SME||Qualifying Expenditure||Pre 1 April 2023 Saving||Post 1 April 2023 Saving|
|Taxpaying Company||£100,000||£24,700 Reduction in CT (based on 19%)||£21,500 Reduction in CT (based on 25%)|
|Loss Making Company||£100,000||£33,350 Tax credit||£18,600 Tax credit|
The above illustrates that if profitable and paying corporation tax at the 25% rate post 1 April 2023*, the impact of these changes is less severe. However, as evidenced above, the impact on a loss-making entity is much more significant, almost halving the cash injection. All is not lost, however, as there may be the option of carrying forward losses to a period where the company is profitable in the near future, at which point they’d be relievable at a higher rate e.g., 25%.
*Please note that a 19% corporation tax rate will apply to companies with profits of £50,000 or less, with a marginal rate of 26.5% applying to profits falling between £50,000 and £250,000 (thresholds reduced based on the number of associated companies), so these savings and credits will differ based on client tax positions.
There are further consultations to be held around designing a single scheme for R&D which would simplify the claim process, however, eligibility remains at the forefront of HMRC’s work at the moment and it’s highly recommended that you consult with an expert prior to making a claim under these schemes.
Further measures will come into force from 1 April 2023, meaning that claims will need to be endorsed by a named senior officer of the claimant company, and intentions to make a claim will need to be notified to HMRC, amongst others.
It’s imperative that genuinely innovative companies are not put off by these measures or reductions in rates, as HMRC is only looking to eliminate the truly fraudulent claims being made, and by working with a reputable adviser, you can build a robust and substantiated claim.
This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us