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Autumn Statement 2022: Rebalancing of R&D Tax Relief

18 Nov

Autumn Statement 2022: Rebalancing of R&D Tax Relief

by Georgina Swain
in R&D Tax Relief
Comments

In Thursday’s Autumn Statement, the Chancellor announced changes to both the large company and SME Research & Development (R&D) tax relief schemes in an attempt to rebalance them and ensure taxpayers’ money is effectively spent. The following changes will apply to expenditure incurred on or after 1 April 2023:

  • The additional deduction for claims within the SME scheme will be reduced from 130% to 86%
  • The amount of repayable tax credit is reduced from 14.5% to 10%
  • The rate of relief for R&D Expenditure Credit (RDEC) will be increased from 13% to 20%

What does this mean for businesses:

  • Profitable SMEs : Reduction in benefit from up to 24.7% to 21.5% of qualifying R&D spend
  • Loss-making SMEs : Reduction in benefit from up to 33.3% to 18.6% of qualifying R&D spend
  • SME grant-funded projects : Increase in benefit from 10.5% to 15% of qualifying R&D spend
  • Large companies : Increase in benefit from 10.5% to 15% of qualifying R&D spend

In general, this seems to be a big step towards aligning the RDEC and SME tax relief regimes and there are clear winners and losers from these changes. Large companies will see a significant increase in their claim values by over 42%, while loss-making SMEs are the hardest hit with a reduction of almost 45%.

This announcement isn’t surprising given the significant increase in the cost of the SME scheme and the well documented abuse within the regime. HMRC is under a huge amount of pressure to tackle these issues to bring the scheme back under control and provide value for money.

Beavis Morgan welcomes all measures to eliminate abuse of the R&D scheme and it is more important than ever for companies to use a regulated and reputable firm. It is regrettable that the actions of some exploiting the more generous SME scheme is now penalising genuine R&D activities being undertaken by others.

Companies should note that these changes will not impact their existing or outstanding R&D claims. However, it is important that claimants evaluate the impact on future claims of these rate changes, as well as the other changes from 1 April 2023 including corporation tax rises, restriction to overseas R&D and the inclusion of cloud computing and data costs in R&D claims.

Beavis Morgan would like to encourage all our clients to schedule in a call with us so that we can provide guidance and help you understand more about these changes and how they may impact your business. Please contact your usual Beavis Morgan R&D manager or Rebecca Heap on Tel: 0207 549 2357 or Email: rebecca.heap@beavismorgan.com to arrange your R&D review.