Following on from HM Treasury’s Review of the effectiveness of UK RD reliefs in November 2021, writes Maria Kitt, Director Tax Insight, the Spring Budget 2023 has formulated various rate and administrative changes to the SME and RDEC schemes.
Is your company an ‘SME RD INTENSIVE ENTITY?’ in which case, the proposed reductions to tax credit will be stayed……… For RDEC claimants, you will actually be hugely better off under the new regime………
Detail – For expenditure incurred on or after 1 April 2023, the RDEC rate, for large companies, will increase from 13% to 20%. However, the additional deduction for SMEs will decrease from 130% to 86%, and the SME credit rate will generally decrease from 14.5% to 10%, unless the SME is deemed a R&D intensive company. This is a newly proposed measure of the Spring Budget to ensure greater R&D tax relief is given to those firms whose R&D expenditure is 40% or greater of their total expenditure (including connected companies), and will allow loss-making SMEs to continue to surrender losses at a rate of 14.5% for expenditure incurred on or after 1 April 2023.
It should be noted that no claims for this greater level of relief can be made until 1 August 2023 and so consideration should be given as to whether the submission of a claim is delayed, or duplicated (submitted pre-August to access relief at 10%, and resubmitting from 1 August to access the higher 14.5% rate).
Other significant changes are in the pipeline, particularly for the SME scheme further to the government publishing a tax consultation document in January 2023 to seek views on the design of a single, simplified R&D tax credit scheme, modelled on the RDEC scheme already in place. Read HMRC’s consultation