All changes are to be implemented for expenditure commencing on or after 1st April '23.
RIFT Group would like to highlight a number of changes to the UK tax system that were announced during the Autumn Statement (17th November) that will have a direct impact on Research & Development Tax Relief.
All changes are to be implemented for expenditure commencing on or after 1st April 2023.
What are the changes?
Small-to-Medium Enterprises (SMEs)
- The enhanced deduction rate of relief will be reduced from 130% to 86%.
- The rate at which a company can receive a tax credit has been reduced from 14.5% to 10%.
What does this mean in terms of benefit value?
- Where a loss-making SME could previously receive tax relief of up to 33% of their qualifying R&D expenditure, the new rates would reduce this to 18.6%.
- Example 1) Company A made a loss in the financial year ending 31 May 2024. They have spent £50,000 on qualifying R&D activity. Under the new rates, the company would be able to claim a tax credit of £9,300.
- With profit-making SMEs, companies were able to receive tax relief of up to 24.7% of their qualifying R&D expenditure, the new rates would reduce this tax saving to a maximum of 21.5%.
- Example 2) Company B made a profit in the financial year ending 31 May 2024. They have spent £50,000 on qualifying R&D activity. Under the new rates, the tax relief the company would receive could be up to £10,750.
Large Companies and some grant-funded R&D (RDEC)
- RDEC rate will increase from 13% to 20%.
- The RDEC scheme is available for large companies with 500+ full-time staff, €86m gross assets and or €100 turnover, or Companies in receipt of other grant funding, who would normally claim under the SME scheme.
What does this mean in terms of benefit value?
- In monetary terms: under the current R&D rates, a £100,000 qualifying R&D spend would have resulted in a net RDEC Credit of £10,530.
- Under the new R&D rates, £100,000 qualifying R&D spend will now result in an increased net RDEC Credit of £15,000.
In light of this announcement, RIFT will be actively adapting to these changes.
Acknowledging the reform between greater credit for RDEC claims and more conservative credit for SME claims, RIFT remains focused on understanding your business, qualifying requirements, and maximisation of your claim now more than ever.
We wish to reiterate the Government’s statement that they "remain committed to supporting R&D, and the amount of support provided to innovative businesses through R&D tax reliefs is forecast to increase" - Autumn Statement 2022 HTML - GOV.UK (www.gov.uk)
Ultimately, we implore legitimate companies to continue claiming their R&D – the landscape may be changing in the short term; however, innovation needs to continue, and RIFT will continually support and reward the initiative.