After many years of relative stability, the rate of R&D reliefs has seen a big movement in this Autumn Statement.
Small and Medium-Sized Enterprises
For expenditure incurred on or after 1 April 2023, the R&D tax relief scheme for small and medium-sized enterprises (‘SMEs’) will be less generous. The additional SME deduction will decrease from 130% to 86% of qualifying expenditure but this is offset to a certain extent given that the main rate of Corporation Tax is increasing to 25% at the same time.
Under the current rules, a profit-making SME would receive a tax saving worth 24.7% of their qualifying R&D expenditure, the new rules will reduce that benefit to 21.5% for companies subject to the new main rate of Corporation Tax (and it will reduce further to 16.34% of the amount spent for those companies with profits up to £50,000).
As a result of these changes, companies could have an additional tax liability of up to £8,170 for each £100,000 of R&D expenditure incurred.
For loss making SMEs the amount of the payable credit has also reduced, from 14.5% to 10%. In real terms, this means that a loss-making company spending £100,000 on R&D would currently be able to claim a payable credit of £33,350 but that figure will reduce to £18,700.
Overall, the benefit for profitable and loss-making SMEs will be much more closely aligned after 1 April 2023. A profit-making company can expect to receive a benefit worth 21.5% of the amount they spend on R&D whereas a loss-making company can achieve a benefit worth 18.6%.
Research & Development Expenditure Credit
For large companies, broadly those with over 500 employees or turnover in excess of €100m, the R&D scheme will be more generous after 1 April 2023.
Under the existing rules the net value of the Research & Development Expenditure Credit (‘RDEC’) is 10.53% of the amount spent on R&D – from 1 April 2023 that figure will increase to 15%. There is no distinction between profitable or loss-making companies for the purposes of the RDEC scheme.
The change applies to the date expenditure is incurred rather than the accounting period end date – a company with a year end of 31 December 2023, for example, will therefore have to be aware of the different rates applicable in the year and ensure expenditure is identified appropriately.
Conclusion
The SME R&D scheme has been under parliamentary scrutiny recently and it felt inevitable that there would be a change to the scheme. To coincide with the change to the rates of relief there is a slight widening of allowable costs for R&D purposes so, for example, cloud computing costs will be allowable. This is a welcome addition to the allowable costs for R&D purposes but will not offset the reduction in the rate of SME relief in full.
Those claiming under the RDEC scheme have seen their benefit increase quite significantly and this, perhaps, points to the desire of the Government to attract and retain innovative people and companies during this difficult economic period.
