What Did the 2023 Spring Budget Say About the R&D Tax Scheme?

The previous decrease in the benefits available under the R&D tax scheme had provoked an immediate reaction from SMEs and various industry bodies who consider this harmful to the UK’s crucial tech sector.

by Pronovotech

Following on from the significant reduction in the R&D tax credit announced in the Autumn Statement, the Chancellor has announced further changes to the scheme.

A new, higher rate of benefit will now be available to loss-making yet R&D-intensive SMEs from 1 April 2023.

For these companies – with qualifying R&D expenditure which is at least 40% of total expenditure in the period – there is now a maximum effective benefit of just under 27%.

This new, higher rate will be particularly welcome for startups where R&D is the main focus of activity and is expected to be worth around £500 million per year.

However, there is no doubt that the move will bring added complexity, especially where the level of spend is borderline.

Furthermore, claims for the higher rate cannot be made until legislated in a future Finance Act, so companies may need to claim at the reduced rate first and refile late to benefit from the higher level.

We’ll be keeping a close eye on how the legislation develops.

Additional Changes to the Scheme.

  • Additional information, to be provided by a digital form, must be supplied for all claims made from 1 August 2023. Companies will need to ensure their advisers complete the new form to avoid claims being rejected.
  • The restriction of qualifying subcontract costs to UK-based only activity will be delayed to 1 April 2024. This is to allow the Treasury to consider the impact on the planned merger of the R&D tax credit and R&D Expenditure Credit into a single scheme for all companies.

Taken together with the previously announced changes, the latest developments mean that further complexity and uncertainty has been added to the process of claiming R&D tax relief, so that companies need to ensure more than ever that they are getting the right advice.

If you would like to discuss the changes or indeed any aspect of your R&D claims please don’t hesitate to get in touch.