Tax Reliefs including R&D
This year’s Autumn Statement has focused on an agenda of stability and growth to see the UK through the recession. The Chancellor has committed to tightening fiscal policy, curbing spending, and raising taxes.
From 1 April 2023, the UK will see a number of significant changes to its tax regime, in particular its tax reliefs and incentives.
Research and Development (R&D) tax relief reform
The Chancellor has sought to bolster investment in innovation by large companies by increasing the Research and Development Expenditure Credit (“RDEC”) rate from 13% to 20% for expenditure incurred on and after 1 April 2023.
By contrast, small and medium enterprises (“SMEs”) will see a significant reduction in their R&D tax relief for their expenditure from the same date, with the enhanced deduction being reduced from 130% to 86% and the tax credit rate dropping from 14.5% to 10%.
Given the increase in the corporation tax rate and removal of a number of other Covid tax relief measures, the overall impact of this change on SME tax savings may drop by as little as 3.2%. However, for businesses seeking cashflow, this move may be a big blow.
The government has further announced an intention to further simplify the UK’s R&D tax relief schemes, combining the two into a single scheme that works for all.
Why is the government reforming R&D tax relief?
Through reviews of the SME R&D tax relief scheme, the government surmised that the scheme has been tainted by fraud and error from certain claimants. This has led, in recent months, to significant changes in the way HMRC handles R&D tax relief claims, increasing their level of activity and taking a more intensive approach. The government will also be investing £79m in HMRC over the next 5 years to further tackle fraud and abuse.
Through HMRC’s change in approach, along with the changes announced in the last budget (to intensify compliance requirements for claimants, increase HMRC’s powers of inspection, and refocus R&D spend to the UK), the government hopes to achieve a more rigorous R&D claim process that will help to combat fraud and ensure that SME R&D relief will be better focused going forwards.
Other funding for innovation
The government is still seeking to expand other types of funding for innovative businesses through grants, programmes by Innovate UK, the Made Smarter Adoption programme, and continued support of investment initiatives for venture capital and enterprise investment schemes.
Supporting you with R&D tax relief
The significant changes coming to R&D tax relief from 1 April 2023 will bring additional complexity and change the way in which claims should be made in order to be accepted. Seeking advice early will be the best way to ensure that your company will continue to be able to access the generous reliefs.
Our Incentives and Reliefs team are on hand to help you continue to make compliant claims for tax reliefs, and keep abreast of the complex changes coming into play.