Research and Development (R&D)
The government set out its strategy to continue to encourage R&D in the UK, with public funding for R&D set to increase to £20bn by 2024/25 to help make Britain the “next Silicon Valley”.
As part of the ongoing review of R&D tax reliefs, the government has identified significant error and fraud in the SME scheme for small and medium sized enterprises, which is seen as an easy target for fraud due to its generosity.
The RDEC scheme (for larger businesses and small and medium sized enterprises undertaking R&D that is subsidised) is viewed by the government as offering better value than the SME scheme but has been uncompetitive internationally. The government will consult on moving to one unified scheme.
The government has previously announced measures to expand the scope of R&D under both schemes, refocus the schemes on UK based R&D and improve compliance, which will take effect for accounting periods beginning on or after 1 April 2023.
In order to address the issues outlined above, the following measures are being introduced in respect of expenditure incurred on or after 1 April 2023, in addition to the previously announced measures:
The enhancement credit in the SME R&D scheme will be cut to 86% from 130%. In addition, the credit rate (the rate at which losses can be surrendered to HMRC for a cash credit) will be cut from 14.5% to 10%.
As a result of the above, the maximum cash credit available to loss making companies making claims under the SME scheme will be reduced from 33.35% to 18.6% of their qualifying expenditure. Businesses need to be aware that the available credit can be reduced to 8.6% depending on the level of losses and R&D tax relief.
For tax paying companies making R&D claims under the SME scheme, the maximum potential reduction in their corporation tax liability will be 21.5% (assuming a corporation tax rate of 25%) of qualifying expenditure.
The credit rate under the RDEC scheme (for larger companies or SME companies with R&D expenditure that is subsidised) will be increased from 13% to 20%.
Companies making claims under the RDEC scheme will be entitled to receive a credit after tax, either as a reduction of their tax liabilities or as a payable cash credit, equivalent to 15% of qualifying R&D expenditure assuming a 25% corporation tax rate.
The previously announced permanent change to maintain the Annual Investment Allowance (“AIA”) at £1m was reiterated in today’s Statement. The AIA has been £1m since January 2019 due to a series of temporary increases from the permanent level of £200k.
While this is no substitute for the capital allowances ‘super deduction’ or ‘special rate allowance’, which both come to an end from 1 April 2023, it will continue to be a significant benefit for those smaller companies and groups with annual expenditure under £1m.
In addition to the AIA, an extension of the 100% First Year Allowance for electric vehicle charge-points from 31 March 2023 to 31 March 2025 was announced.
Get in touch
If you have any questions on the tax incentive updates announced in the Autumn Statement, please contact Mathew Scott of our Tax team. We'd be delighted to hear from you.