Reform of the UK’s R&D tax reliefs has been ongoing for several years and with yet more changes taking effect from April 2023, and others from April 2024, it has become a rather iterative process. While this is hardly helpful for businesses planning R&D projects, there was some good news amongst the Budget announcements.
Overseas costs
Draft legislation to prevent companies from claiming R&D relief in the UK for project work undertaken overseas was released last year with the restriction due to take effect for accounting periods beginning on or after 1 April 2023. This change has now been delayed until April 2024 when the Government plans to combine both the RDEC and the SME tax relief schemes into one single regime. While this postponement is good news, it may be only a deferral of the inevitable. In practice, many businesses will have already started planning for the change and so the reversal of the prohibition, so late in the day, may bring about little or no benefit.
SME relief – reprieve for some loss making businesses
Changes to the rates of R&D relief in both schemes that were announced at the Autumn Statement 2022 are due to take effect from April 2023: Broadly the SME scheme will give less relief while the RDEC will give more. Under these changes, small loss-making companies were expecting to see their effective rate of subsidy through the repayable R&D credit fall from 33.4% of costs to just 18.6% of their costs.
In the Budget, the Chancellor announced that where such loss-making businesses have qualifying R&D expenditure of more than 40% of their total annual costs, they will be able to claim a repayable credit of 27% of their costs. Therefore, while these R&D intensive businesses will still lose some funding support from April onwards, the impact will be less than previously feared. Unfortunately, there is no similar relief for R&D intensive businesses who have already begun to make profits.
New claims process brought forward
It was also announced in the Autumn Statement 2022 that HMRC would require companies submitting R&D claims for accounting periods starting after 1 April 2023 to supply an ‘Additional Information’ form submitted electronically with the claim. This will require significantly more information than is currently submitted with claims: there is a long list of data required but notably this includes:
a detailed report and narrative on each R&D project;
a breakdown of costs across specified categories;
the PAYE/NIC reference of each company through whom any externally provided workers are engaged;
the name of the agent who has advised the company on compiling the claim; and
the signature of a named senior officer of the claimant company.
This change has now been brought forward and will apply to all claims submitted under the SME or RDEC scheme from 1 August 2023. While this will be a new burden for both advisers and clients, it is perhaps no surprise that this change has been accelerated as HMRC believes that the new process will help reduce error and fraud in R&D claims.
Funding for future technologies
The government has also published its quantum strategy and has announced that it plans to invest £2.5bn over 10 years to help fund the development of quantum technologies in the UK. Alongside this it will create an annual ‘Manchester prize’ of £1m for UK individuals or businesses making the most important advances in AI. It will also invest £100 million in the innovation accelerators programme for transformative R&D projects.
More changes next year?
Although the R&D tax reliefs review: consultation on a single scheme only closed this week, it was perhaps surprising that the proposals only received a passing mention in the Budget documents given that the merged scheme is scheduled to take effect from April 2024. A merged scheme brings a great opportunity to adopt the best features of both current reliefs – but the government shouldn’t rush changes through. Some stability in the rules for a few years could prove just as helpful.
Home >Articles > Spring Budget 2023: some good news for R&D reliefs
Spring Budget 2023: some good news for R&D reliefs
Reform of the UK’s R&D tax reliefs has been ongoing for several years and with yet more changes taking effect from April 2023, and others from April 2024, it has become a rather iterative process. While this is hardly helpful for businesses planning R&D projects, there was some good news amongst the Budget announcements.
Overseas costs
Draft legislation to prevent companies from claiming R&D relief in the UK for project work undertaken overseas was released last year with the restriction due to take effect for accounting periods beginning on or after 1 April 2023. This change has now been delayed until April 2024 when the Government plans to combine both the RDEC and the SME tax relief schemes into one single regime. While this postponement is good news, it may be only a deferral of the inevitable. In practice, many businesses will have already started planning for the change and so the reversal of the prohibition, so late in the day, may bring about little or no benefit.
SME relief – reprieve for some loss making businesses
Changes to the rates of R&D relief in both schemes that were announced at the Autumn Statement 2022 are due to take effect from April 2023: Broadly the SME scheme will give less relief while the RDEC will give more. Under these changes, small loss-making companies were expecting to see their effective rate of subsidy through the repayable R&D credit fall from 33.4% of costs to just 18.6% of their costs.
In the Budget, the Chancellor announced that where such loss-making businesses have qualifying R&D expenditure of more than 40% of their total annual costs, they will be able to claim a repayable credit of 27% of their costs. Therefore, while these R&D intensive businesses will still lose some funding support from April onwards, the impact will be less than previously feared. Unfortunately, there is no similar relief for R&D intensive businesses who have already begun to make profits.
New claims process brought forward
It was also announced in the Autumn Statement 2022 that HMRC would require companies submitting R&D claims for accounting periods starting after 1 April 2023 to supply an ‘Additional Information’ form submitted electronically with the claim. This will require significantly more information than is currently submitted with claims: there is a long list of data required but notably this includes:
a detailed report and narrative on each R&D project;
a breakdown of costs across specified categories;
the PAYE/NIC reference of each company through whom any externally provided workers are engaged;
the name of the agent who has advised the company on compiling the claim; and
the signature of a named senior officer of the claimant company.
This change has now been brought forward and will apply to all claims submitted under the SME or RDEC scheme from 1 August 2023. While this will be a new burden for both advisers and clients, it is perhaps no surprise that this change has been accelerated as HMRC believes that the new process will help reduce error and fraud in R&D claims.
Funding for future technologies
The government has also published its quantum strategy and has announced that it plans to invest £2.5bn over 10 years to help fund the development of quantum technologies in the UK. Alongside this it will create an annual ‘Manchester prize’ of £1m for UK individuals or businesses making the most important advances in AI. It will also invest £100 million in the innovation accelerators programme for transformative R&D projects.
More changes next year?
Although the R&D tax reliefs review: consultation on a single scheme only closed this week, it was perhaps surprising that the proposals only received a passing mention in the Budget documents given that the merged scheme is scheduled to take effect from April 2024. A merged scheme brings a great opportunity to adopt the best features of both current reliefs – but the government shouldn’t rush changes through. Some stability in the rules for a few years could prove just as helpful.
