In the ever-evolving landscape of R&D tax, the latest updates have been nothing short of a roller coaster with substantial reforms making headlines. The government’s commitment, as announced in yesterday’s Autumn Statement, to forge ahead with a unified scheme starting for accounting periods on or after 1 April 2024, suggests businesses need to buckle up for a continuous ride of legislative changes – allowing no respite.
As the R&D tax schemes gear up for an impending merger, aligning closely with the current R&D expenditure credit (RDEC) regime, companies once under the SME scheme are set to receive an ‘above-the-line’ taxable credit – finally providing better visibility in their accounts! Moreover, the shift to the new merged scheme will see a reduction in the notional corporation tax rate from 25% to 19% for loss-making companies, enhancing the RDEC cash benefit further (16.2p for every £1 invested in R&D, versus 15p if profitable). However, the new merged scheme rates pose a disadvantage for SMEs, being lower than those in the existing SME scheme.
To add into the mix, a new R&D scheme tailored for SMEs will run in parallel with the merged scheme for expenditure incurred from 1 April 2023. This separate scheme is designed to provide heightened relief rates for specific – R&D intensive – loss-making SMEs and will receive 27p for every £1 invested in R&D. Previously, a company was deemed to qualify if its R&D expenditure constituted 40% of its total deductible expenditure. However, the government has now revised this threshold to 30% for accounting periods beginning on or after 1 April 2024. This adjustment is anticipated to extend eligibility to an additional 5,000 UK companies for enhanced relief rates and to provide certainty to businesses, a one-year grace period will be introduced in case a company had fallen below the 30% threshold in the following accounting period.
The announcements went further and aimed to finally address concerns in cases where R&D has been contracted out to the company. This has been a major problem for businesses seeking clear guidelines. The government now aims to ensure that the entity deciding on and shouldering the risks of R&D benefits from making the claim. However, for a full understanding of the implications this will require a review of the forthcoming Autumn Finance Bill 2023. The specifics hinge on unique contract terms and factual circumstances – underscoring the increasing importance of reviewing and understanding contracts before work begins to avoid overlooking available benefits.
In response to ongoing changes, the government acknowledges high levels of non-compliance, suggesting potential additional measures to address the issue. Furthermore, businesses are still navigating the impact of the recently introduced additional information form, resulting in a substantial 50% surge in rejected claims following its introduction. The ICAEW has been actively seeking input from claimants and agents on the form’s functionality, preparing to submit feedback to HMRC soon.
Overall, a positive step that has been a long time coming. We eagerly await the unveiling of more detailed guidance and the proposed tax law (following that released on L-Day in July) to better understand the specific details.
Mohammed N Mogra (director) and Sophie Edwards (associate director) at Grant Thornton
Home >Articles > Autumn Statement 2023: R&D reliefs
Autumn Statement 2023: R&D reliefs
The R&D relief ‘roller coaster’ continues.
In the ever-evolving landscape of R&D tax, the latest updates have been nothing short of a roller coaster with substantial reforms making headlines. The government’s commitment, as announced in yesterday’s Autumn Statement, to forge ahead with a unified scheme starting for accounting periods on or after 1 April 2024, suggests businesses need to buckle up for a continuous ride of legislative changes – allowing no respite.
As the R&D tax schemes gear up for an impending merger, aligning closely with the current R&D expenditure credit (RDEC) regime, companies once under the SME scheme are set to receive an ‘above-the-line’ taxable credit – finally providing better visibility in their accounts! Moreover, the shift to the new merged scheme will see a reduction in the notional corporation tax rate from 25% to 19% for loss-making companies, enhancing the RDEC cash benefit further (16.2p for every £1 invested in R&D, versus 15p if profitable). However, the new merged scheme rates pose a disadvantage for SMEs, being lower than those in the existing SME scheme.
To add into the mix, a new R&D scheme tailored for SMEs will run in parallel with the merged scheme for expenditure incurred from 1 April 2023. This separate scheme is designed to provide heightened relief rates for specific – R&D intensive – loss-making SMEs and will receive 27p for every £1 invested in R&D. Previously, a company was deemed to qualify if its R&D expenditure constituted 40% of its total deductible expenditure. However, the government has now revised this threshold to 30% for accounting periods beginning on or after 1 April 2024. This adjustment is anticipated to extend eligibility to an additional 5,000 UK companies for enhanced relief rates and to provide certainty to businesses, a one-year grace period will be introduced in case a company had fallen below the 30% threshold in the following accounting period.
The announcements went further and aimed to finally address concerns in cases where R&D has been contracted out to the company. This has been a major problem for businesses seeking clear guidelines. The government now aims to ensure that the entity deciding on and shouldering the risks of R&D benefits from making the claim. However, for a full understanding of the implications this will require a review of the forthcoming Autumn Finance Bill 2023. The specifics hinge on unique contract terms and factual circumstances – underscoring the increasing importance of reviewing and understanding contracts before work begins to avoid overlooking available benefits.
In response to ongoing changes, the government acknowledges high levels of non-compliance, suggesting potential additional measures to address the issue. Furthermore, businesses are still navigating the impact of the recently introduced additional information form, resulting in a substantial 50% surge in rejected claims following its introduction. The ICAEW has been actively seeking input from claimants and agents on the form’s functionality, preparing to submit feedback to HMRC soon.
Overall, a positive step that has been a long time coming. We eagerly await the unveiling of more detailed guidance and the proposed tax law (following that released on L-Day in July) to better understand the specific details.
Mohammed N Mogra (director) and Sophie Edwards (associate director) at Grant Thornton
