The latest changes to R&D tax credits
The Government is determined to encourage innovation in an effort to boost productivity growth with a target to raise investment in R&D to 2.4% of UK GDP by 2027. In the 2023 spring statement, the Chancellor Jeremy Hunt emphasised that the budget was focused on growth. R&D tax reliefs play an important part in incentivising R&D projects which in turn boost the economy. There were a number of key changes announced which focused on supporting innovation in the UK.
After reports of abuse and fraud with the R&D SME scheme, the Chancellor announced a cut in the enhancement rate from 130% to 86% and the tax credit rate is being reduced from 14.5 % to 10%. With regards to the RDEC scheme this will increase from 13% to 20%. These changes will be effective from 1 April 2023.
There is a focus on making the relief more attractive to larger businesses and reducing the relief for SME’s. The main reason is to reduce the level of abuse of the system and the two schemes may be merged in the future.
Two new expenditure categories will be created to include data licences and cloud computing services.
The plans to include international R&D expenditure will now be delayed until 1 April 2024. A new credit will be available to loss-making SME’s where the R&D expenditure is at least 40% of total spend.
In order for HMRC to conduct more upfront compliance checks, they are planning to implement a new digital from within 6 months of the end of the accounting period in which the expenditure is incurred. You can view the full changes announced here.
Jon Goodier, R&D Director said “It’s good to see that the Government recognises the importance of rewarding innovation in the UK. The two new expenditure categories are very welcomed as this will provide more support to newly developed industries.”
R&D tax credits can be a bit of a minefield, so to ensure you are maximising the amount of R&D tax credit that you can claim, it is worth discussing your claim with an expert. Our top tips highlight the key factors you need to consider.