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Benefitting from Innovation: R&D tax relief

For small and medium sized companies (“SME”s) with profits there is a “super” tax deduction. Until 1 April 2023 an SME spending £10,000 on eligible R&D could save tax of up to £2,470. This will be substantially reduced after 1 April 2023. Where the extra deduction creates or increases a tax loss it may be possible to surrender the loss and receive a cash repayment instead, of up to £3,335 (£1,860 from 1 April 2023) for every £10,000 of qualifying expenditure.

The regime for larger companies is less generous, but nevertheless very worthwhile. Large companies (or members of large groups) can receive a taxable credit of 13% (20% from 1 April 2023) of qualifying expenditure under the RDEC scheme.

Reforms to the R&D Tax Relief Regime

As part of the ongoing review, the Government is reforming the reliefs to ensure taxpayers’ money is spent as effectively as possible.

Partly as a consequence of error and fraud (particularly in the SME scheme), there have been a number of changes introduced either as a result of consultation or Government fiscal policy:

  • The introduction of the SME Cap in 2021.
  • Refocusing of qualifying expenditure to UK activity and expansion of the definition of software for accounting periods beginning on or after 1 April 2023.
  • Increased compliance requirements for accounting periods beginning on or after 1 April 2023.
  • Rebalancing the rates applicable to the RDEC and SME schemes for expenditure on or after 1 April 2023 (as announced in the Autumn Statement).

Autumn Statement 2022 Revises R&D Tax Relief

The Autumn Statement of 2022 has revised the relief for expenditure on or after 1 April 2023 with the aim of rebalancing the rates between the SME and RDEC schemes. The revised rates mean that the SME scheme becomes less generous, so that £10,000 of qualifying expenditure will save tax in a profitable SME of between £1,634 - £2,150, depending on the corporation tax rate applicable. That same amount spent in a loss-making SME will see a cash repayment of up to £1,860. The RDEC scheme, in turn, becomes more generous with the rate increasing to a 20% taxable credit.

What is Qualifying R&D?

To be able to claim R&D tax relief a company needs to be undertaking qualifying R&D – an advance in science or technology through the resolution of scientific or technological uncertainty; but it is not just about white coats and test tubes. We submit claims across a diverse range of sectors including manufacturing, electronics and engineering, computer software, biosciences, medical devices and food technology or manufacturing.

Our Business Tax team keep in regular contact with the specialist HMRC Incentives and Reliefs teams, ensuring we are always up to date and involved in any consultation processes. This, coupled with our experience and knowledge of the tax law, ensures our clients are getting clear and up-to-date advice.

If you would like to discuss how we can help your business with R&D tax relief claims to maximise your business potential, please contact our Business Tax team who are happy to help guide you through all the forthcoming changes.