This afternoon Chancellor, Jeremy Hunt presented his Spring Budget to parliament with further amendments to R&D Tax Credits including additional support for R&D intensive SMEs. The rate reforms announced in the Autumn Statement are still to go ahead as planned with some minor modifications.
Higher rate of relief for loss-making R&D intensive SMEs
Loss-making SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure will be able to claim a higher payable credit rate of 14.5%. This will take effect for expenditure incurred on or after 1 April 2023.
Update on potential merger of SME and RDEC schemes
The government’s consultation on merging the two schemes closed on 13th March, responses are currently being considered and no decision has yet been made. Draft legislation on a merged scheme will be published for technical consultation alongside the draft Finance Bill in the summer. This will include a summary of responses to the consultation. A final decision along with any further changes as part of the ongoing review of R&D tax reliefs will be announced at a future fiscal event. Should it be decided to merge the schemes, the intention is still for this to be implemented from April 2024.
Delay to restrictions on overseas expenditure in R&D tax reliefs
The previously announced restriction on some overseas expenditure will now come into effect from April 2024 instead of April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged scheme.
Rate cuts announced in Autumn Statement to go ahead as planned
The reforms to R&D Tax Credits announced in the Autumn Statement will be legislated for in the Spring Finance Bill 2023 and will apply to accounting periods from 1st April 2023. The only exception to this is the requirement to provide additional information which will now apply to all claims from 1st August 2023 onwards.
The rate changes due to take effect from 1st April are as follows:
- SME additional deduction rate will reduce from 130% to 86%
- SME payable credit rate will decrease from 14.5% to 10%
- RDEC rate will increase from 13% to 20%
The higher payable credit rate of 14.5% for qualifying loss-making companies can now be added to this list. However, because this latest change will be legislated in a future Finance Bill, companies will only be able to claim it at a later date, once the legislation is in place.
Companies eligible for this additional relief can either submit their claim at the revised standard rate and amend it later, or delay submitting it until the new legislation is in place (subject to the usual time limits for making or amending a claim).
Whilst the additional support now on offer is welcome, not all businesses will be able to take advantage of it and will have to accept the significant reductions being made. Many businesses across the UK who rely on R&D Tax Credits to help fund their innovation activities are going to be hit hard by the cuts.
The full budget statement can be accessed on the UK government website here.
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