The government has announced significant changes to tax relief schemes in the UK for Research & Development (R&D) from 1 April 2023. Some changes were announced in the 2021 Autumn Budget, while others were more recently announced in the 2022 Autumn Statement. The changes are largely centred around consolidating the SME research and development (R&D) scheme and the research and development expenditure credit scheme (RDEC), aimed at larger companies.
The government believes these changes allow companies to maximise tax savings and enhance competitiveness in their respective industries. By understanding the tax system and taking advantage of available tax credits, businesses can invest more in R&D activities, which will benefit the company and society.
However, major concerns have been raised by ICAEW members who concluded that it’s unclear who claims relief when work is contracted out. Members accepted that SMEs were more likely to subcontract R&D, where it is unusual to have the resources in-house.
The consolidation of R&D schemes means businesses no longer need to apply separately for each scheme; rather, they can apply for R&D tax relief under one consolidated application process.
Under these new rules, R&D relief will be available for all eligible expenditures on R&D activities undertaken by small or medium-sized enterprises (SMEs), including large companies that are predominately carrying out research and development work. This will ensure that more businesses can benefit from R&D tax relief and use the associated financial advantages.
Research and Development Tax Relief Rates
from 1st April 2023
In the Autumn Statement, the government announced that the rates of R&D tax relief available on costs incurred from 1 April 2023 onwards would be as follows:
|SME regime||Large company regime (RDEC)|
|Up to 31 March 2023||From 1 April 2023||Up to 31 March 2023||From 1 April 2023|
|Profitable company||130% uplift on costs = 24.7% net benefit||86% uplift on costs = 21.5% net benefit||Headline rate 20% = 15% post-tax||Loss-making company*|
|Loss making company*||Costs plus 130% uplift = 230 x 14.5% repayable credit = 33.4% subsidy||Costs plus 86% uplift = 186 x 10% repayable credit = 18.6% subsidy||10.5% subsidy||15% subsidy|
The changes to R&D tax relief are part of wider efforts by the UK government to foster innovation and support businesses undertaking R&D activities. By making R&D tax relief available to a broader range of companies, the government hopes to incentivise investment in new technologies and products that ultimately benefit consumers, business owners and the economy.
In light of these recent changes, it is essential for all businesses undertaking R&D activities to familiarise themselves with the latest rules and regulations surrounding R&D tax relief.