Spring Budget 2023: R&D tax relief – latest changes plus a commitment to reform the system in the future

In Wednesday’s budget it was announced there would be yet more tinkering to the R&D tax credit regime as well as reconfirming some of the previously expected changes due from April.

All the changes previously announced to reform – R&D tax reliefs for SMEs and R&D Expenditure Credits for larger companies – will take effect, as expected, for accounting periods starting after 1 April 2023. These include the creation of two new categories of qualifying expenditure on data sets and cloud computing services, the more stringent compliance and due diligence obligations and digital reporting as well as restrictions on some overseas expenditure. The latter, however, is being delayed by a further year to 2024, to allow for the potential ‘merged one scheme’ which HMRC has been consulting on recently.

A new announcement at Budget 2023, specifically targets loss-making R&D intensive SMEs and introduces a new, additional R&D tax relief for such qualifying companies from 1 April 2023. A new credit rate will be available to loss-making companies whose R&D expenditure amounts to at least 40% of the company’s total expenditure. Qualifying companies will be able to claim a payable credit rate of 14.5% for qualifying R&D expenditure instead of the lower 10% rate announced in the 2022 Autumn Statement for companies claiming support under the existing R&D SME scheme. Eligible companies will, therefore, be able to claim approximately £27 from HMRC for every £100 of R&D expenditure, instead of the new lower amount of £18.60 for each £100 that non-R&D intensive loss-making companies will receive.

Following the end of the consultation period over whether to combine the SME and larger company (RDEC) schemes, the government has said that no decision has yet been made but it still appears that the two schemes will be merged from April 2024. Further details and a final decision are set to be announced later in the year.

Contact Us

Please don’t hesitate to contact Mark Pashley or a member of the Corporate and Business Tax team if you would like to discuss any of the changes to R&D tax credits.