R&D TAX RELIEF – IT WILL NEVER BE A BETTER TIME TO CLAIM

One area which has been widely scrutinised in recent weeks, and has become a target area for clamping down on abuse, is that of research & development tax relief. It has been well documented that Rishi Sunak has been an advocate of the large company “RDEC” scheme, whilst questioning whether the SME scheme (for small and medium sized entities) really delivers value for money. Recent large scale abuse of the SME tax credit system by certain advisors and a lack of regulation in this areas has not helped matters, so it has been inevitable that this would be a primary area for the Government to target in an attempt to reduce the UK’s budgetary deficit.

As such, the following changes will come into effect for expenditure incurred on or after 1st April 2023:

  • The rate of enhanced expenditure (additional relief) for SMEs undertaking qualifying R&D will reduce from 130% to 86%.
  • The SME tax credit will reduce from 14.5% to 10%.
  • The RDEC (research and development expenditure credit) rate for large companies will increase from 13% to 20%.

The net effect of these changes are as follows:

  • Loss making SMEs, who can currently claim up to 33.35p per £1 spent, will see this reduce to 18.6p per £1 spent post – 1st April 2023, almost halving the value of such claims.
  • Profitable SMEs, who currently save an additional 24.7p per £1 spent, will see this reduce to somewhere between 16.34p and 22.79p per £1 spent, depending on the level of profitability.
  • Large companies, currently claiming a net credit of 10.53p per £1 spent, will see the value of their claims increase by over 40% to a 15p net credit per £1 spent.

The legislation indicates that these changes affect expenditure incurred post-April 2023, which means that we will see the changes above gradually take effect over the next 12 to 18 months which will mean that it will never be a better time to claim. And for large companies too! The changes seem to favour larger companies over SMEs, particularly loss making companies, and appears to be a step towards merging the two schemes into one (which is actually alluded to in the Government’s official documentation).

In terms of the wider R&D legislation, no further changes were announced other than those already coming into effect from next April relating to anti-abuse measures, overseas subcontracted expenditure and a widening of the relief for cloud computing and data expenditure.

This is still a very valuable relief and prepared sensibly by a regulated adviser, its essential for companies to consider.

Patent Box tax relief – Tax savings significantly increased

For some other corporate tax reliefs, no news meant good news. No changes were mentioned in terms of the patent box tax relief legislation, which means that from next April profitable companies could save up to 15p per £1 of relevant IP profits made, up significantly from the current 9p per £1 saved.

VTFP in Partnership with YesTax

Related News Articles

Navigating Tax Changes: High-Income Child Benefit Charge and Other Updates 

THE HIGH-INCOME CHILD BENEFIT CHARGE In an effort to reduce unfairness, the thresholds for the high-income child benefit charge (HICBC) will be increased from 2024/25. You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you,…

CIOT Responds to HMRC Regarding the Current Problems with R&D Tax Relief

In the summer of 2023, HMRC and the Chartered Institute of Taxation (CIOT) exchanged lengthy correspondence about the approach being taken by HMRC relating to R&D tax relief claim compliance checks. The CIOT expressed concern about a number of tactics being employed; HMRC’s response was to largely defend the measures being undertaken. Several months have…

The VAT threshold: Should it be changed, and do I need to register for VAT?

The current UK VAT threshold is £85,000. This threshold is due to stay in place until at least April 2016, meaning that by that time the VAT threshold will not have changed for at least 9 years. On our advice line, we receive queries daily from businesses that want to remain below the VAT threshold,…