Background to the announcements and looking ahead
With changes already planned to R&D Tax Reliefs that will take effect from April 2023, the Autumn Statement announcement sought to also ‘rebalance the rates’ of the respective SME and RDEC regimes for expenditure incurred from 1 April 2023, all in the hope to “ensure taxpayers’ money is spent as effectively as possible”.
To kick start this rebalancing, the rate available to SMEs will be decreased, whilst those available to RDECs will increase.
SME Regime rate to decrease
The SME regime will see a decrease of the 130% additional deduction to 86%, with the tax credit rate reduced from 14.5% to 10%. This will have slightly different impacts based on whether your company is profitable or loss-making.
A profitable company
Profitable companies paying the increased 25% Corporation Tax rate will see the benefit of their claims decrease from (broadly) 24.7% to 21.5% of every £1 spent on qualifying R&D expenditure.
For a company where the Small Profits Rate applies, this will be 16.3%.
A loss-making company
Loss-making companies receiving a tax credit for their R&D activity will see the benefit of their claims decrease from up to 33.35% to up to 18.6% of every £1 spent on qualifying R&D expenditure. This could be as low as 8.6%*.
*Businesses should consider whether it will be best to surrender losses for a reduced tax credit or carry them forward for potentially more valuable losses in the future.
RDEC Regime to increase
The RDEC regime will see an increase of the 13% rate to 20%. In real terms, this will mean that large companies, or SMEs that have received grant funding or other subsidies towards their R&D projects, will see the net benefit of their claims increase from 10.5% to 15% of every £1 spent on qualifying R&D expenditure (a 42% increase).
What else was announced?
The Government also announced a commitment to increase R&D spending to £20bn a year by 2024-25.
There are other big changes to R&D tax relief regimes already planned from April 2023 and you can get started by downloading our R&D Tax Reliefs Changes guide, which covers the changes, the impact they will have and how we can help.
Key takeaways
These measures represent a significant change to R&D Tax Reliefs going forward. The value of claims will be impacted, varying from company to company depending on their size, the compliance aspects of their claim, and whether they are profitable or loss-making.
Earlier-stage start-up companies, for instance, will suffer if they have been making losses as they invest in their technology and rely on substantial tax credits (which will now reduce in value).
With the other upcoming changes to the R&D schemes due to come into effect from April 2023, in particular, the requirement to submit a technical report to support their claims, it is still important for businesses that are eligible to claim this still generous tax relief to do so. And, it’s always recommended that they work with a high-quality partner/advisor to help guide them through the claim process.
Planning a R&D claim in the future?
Overall, both the SME and RDEC reliefs look likely to continue to represent a sizeable incentive for innovative companies, providing them with additional financial support for their development work and comprising a key pillar of the government’s total spending on R&D.
Our expert team are on hand to offer support and guidance on your claims and ensure that you maximise the R&D Tax reliefs that are available to you. If you’d like to talk through your R&D Tax Reliefs needs or just get some initial advice, please give our R&D Incentives team a call on 0114 698 6960.
