Research and Development (R&D) Relief – Spring Budget 2023

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%. A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive. To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.

Other announced changes to the R&D regime include:

• Expanding qualifying expenditure to include the costs of datasets and of cloud computing. All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form.
• Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates, generally if they have not made an R&D claim in the previous three years.

These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.

The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.

The increase in the RDEC rate means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies. The government is currently considering responses to a consultation on merging the RDEC and SME schemes and expects to publish draft legislation for technical consultation in the summer.

Rebecca Heap, Beavis Morgan R&D, comments: “This is the most significant reform of the R&D Tax Scheme in recent years. Many businesses are unsure when and how these complex changes will impact them. We can help companies forecast and plan for the transition and ensure they remain compliant with updates in the legislation and additional information required.

For further information and to discuss your future claims with us, please contact Rebecca Heap.

Download Beavis Morgan’s Spring Budget 2023 Summary, covering the key points relevant to you and your business.