17 November 2022
Press ReleasesWhilst still committing to increased spend on Innovation and R&D in total, the Autumn Statement 2022 announced further reforms to the R&D tax reliefs schemes.
A “rebalancing” of the schemes so that the R&D Expenditure Credit Scheme (RDEC), generally claimed by larger companies, becomes more generous, but the SME scheme, becomes less so. The Government also indicates that the rebalance is a step towards a single simplified R&D scheme modelled on RDEC lines.
The measures are expected to result in less R&D tax relief being paid out, (approx. £4.5 billion over a five-year period). This is presumably linked to HMRCs opinion that the SME scheme is open to significant error and fraud.
From 1 April 2023, the RDEC increases to 20% (from 13%). This is, however, taxable so the net effect may be reduced by the rise in corporation tax rate. For the majority of companies, the relief will equate to 15% of spend.
At the same time the SME scheme is amended to reduce the uplift from 130% to 86%. The surrender for cash rate also reduces from 14.5% to 10%. This reform will particularly hit loss making SME’s the hardest, who prior to 1 April 2023 can get up to £3,335 of cash back for every £10,000 of qualifying expenditure. After 1 April 2023, this will drop by nearly a half to £1,860.
Margaret Savory, Tax Partner at James Cowper Kreston commented;
“Many of the UK’s brightest and innovative companies are small, such as for example spin outs from UK universities (three of which the Chancellor referred to as ranked as top 10 in the world). These (often loss-making) SMEs typically rely on the cash refunds generated by the SME scheme to plough into further world leading research. I support all attempts to eliminate fraud and abuse of the schemes, but the measures announced seem also to be penalising legitimate R&D companies that the Government wishes to help”.
I welcome that the Government will consult on the design of a single scheme, and work with industry to understand whether further support is necessary for R&D intensive SMEs. It is important to make R&D tax relief easily accessible for legitimate R&D companies. It is my hope however that this is not used to divert valuable tax reliefs from the companies that need them the most.”
The additional reforms come on the back of changes already in draft legislation set to come into effect after 1 April 2023:
If you would like to know more or would like assistance with your R&D tax relief claim, please contact your usual contact at James Cowper Kreston or Margaret Savory.
