R & D News Update November 2022

Chancellor Jeremy Hunt’s Autumn Statement (17 November 2022) announces significant changes to SME R&D Tax Relief and the Research and Development Expenditure Credit (RDEC), MARIA KITT has summarised –

In the statement, the Chancellor confirmed the government is making substantial cuts to the rates of SME R & D reliefs and tax credit incentives. These take us back to where the R & D Scheme first began. In 2000, there was no SME scheme, simply an incentive for large companies to claim what were then seen as complex reliefs. Around 2,500 companies eventually claimed large company reliefs with the scenario continuing until 2002 when the SME reliefs were introduced and claimed by a handful of companies. Unsurprisingly with over 80,000 claims, and a series of fraudulent claims, HM Treasury have become nervous about the scheme and its widespread application beyond sciences, and bona fide research and development. This takes us to where we are now:

The SME relief will fall from 130% to 86%. The value of the payable tax credit,  and companies taken into a tax loss will fall from 14.5% to 10%, this remains tax-free. As a result, loss-making SMEs will lose up to 44% of their relief while profit-making companies will lose up to 13%. The reduction for profitable companies being slowed by the planned rise in corporation tax to 25%.

Meanwhile, the relief available through RDEC will rise from 13% to 20%. After tax, and the corporation tax rise, RDEC will be worth 15p for every £1 invested in eligible expenditure, up from 10.5p. 

These changes will take effect on 1 April 2023 and will apply to expenditure on or after that date. 

According to the government’s full statement, this may be the first step towards combining SME R&D Tax Relief and RDEC into a single scheme. Time has shown that SME reliefs are a key part of the GDP growth roadmap, bearing in mind this is an ‘emergency position’ budget, we look forward to their return.

The Autumn Statement can be seen here;

https://www.gov.uk/government/publications/autumn-statement-2022-documents/autumn-statement-2022-html

And the tax related documents will be available here;

https://www.gov.uk/government/collections/autumn-statement-2022-tax-related-documents