Chancellor Announces Significant Changes to R&D Tax Relief

In last week's Autumn Statement, the Chancellor announced that R&D tax relief available to small and medium sized companies will reduce to 86%, from the current rate of 130%, and the R&D credit rate at which companies can surrender R&D tax losses for a repayment of tax from HMRC will reduce from 14.5% to 10%. Both changes will be effective from 1 April 2023.

This does feel like a case of the Chancellor taking steps to tackle the much-publicised fraud associated with SME R&D claims by making the SME R&D scheme less generous, thereby unfairly punishing SME’s that undertake qualifying R&D and make legitimate R&D claims.

For a profit-making SME, the effective tax saving for R&D expenditure under current rates is 24.7 pence for every pound spent on qualifying R&D. Under the new rates from 1 April 2023 the effective tax saving will reduce to 21.5%.

What about Large Companies?

There was good news on the R&D front for large companies. The chancellor announced that R&D tax relief available to larger companies under the ‘RDEC’ scheme will become more generous, with the RDEC relief increasing from 13% to 20% from 1 April 2023.   This takes the effective tax saving under the RDEC scheme from 10.5% currently to 15% from 1 April 2023.

It feels like these changes are the first step towards a single R&D scheme for both SME’s and Large companies, and while tax simplification is to be encouraged, I suspect most SME’s will disagree in this instance with their R&D relief reducing in value.

An alignment of the two schemes may further punish SME’s given under the RDEC scheme third party sub-contracted R&D expenditure will generally not qualify for relief, whereas it is eligible for relief under the SME scheme.

Looking to make an R&D claim for your business? Our specialised R&D advisors are well-placed to help you get started. For more information, please contact James Thompson at james.thompson@hurst.co.uk.