The government encourages R&D via two different schemes:
- Research and Development Expenditure Credit (RDEC) for large companies.
- “Enhanced expenditure’ scheme for small and medium enterprise (SME) companies
What are the changes to the R&D schemes?
Research and Development Expenditure Credit, a taxable expenditure credit previously paid at 13% will increase to 20% of expenditure from 1 April 2023.
Small and Medium Enterprise “enhanced expenditure” scheme, the additional deduction for qualifying revenue expenditure decreases from 130% to 86%. Meaning that each £100 spent is treated as £186 for tax purposes, rather than £230 from 1 April 2023.
The SME scheme which allows loss-making companies to surrender their loss relating to R&D in exchange for a payable tax credit will see this credit reduced from 14.5% to 10%. For example, a loss-making company with, say, £20,000 of qualifying R&D expenditure, will see its payable tax credit reduce from £6,670 to £3,720 as a result of these changes.
It was also announced that a new credit rate of 14.5% will also be available to SME loss-making companies whose R&D expenditure constitutes at least 40% of total expenditure. Qualifying companies will be able to claim a payable credit at the higher rate for qualifying R&D expenditure, instead of the new 10% credit rate under the existing SME scheme.
Legislation of new reforms
The government will legislate in the Finance Act 2023 to reform the R&D reliefs. The legislation will apply generally to accounting periods starting on or after 1 April 2023. The reforms include a requirement to provide additional information. This will apply to all claims made on or after 1 August 2023.
The changes include:
- The creation of two new categories of qualifying expenditure for R&D tax relief: data licences and cloud computing services.
- Mandating companies to inform HMRC of their intention to make a claim for R&D tax relief using a new digital form within 6 months of the end of the accounting period in which the expenditure is incurred. Allowing HMRC to perform more upfront compliance checks on new claimants. (Companies that have claimed R&D tax reliefs in any of the previous three years will be exempted from this requirement)
The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023.
For detailed advice and guidance on either Research & Development scheme, please contact David Gillies at Friend Partnership.
You can call David on 0121 633 2007 or contact him by email at firstname.lastname@example.org
Friend Partnership is a forward-thinking firm of Chartered Accountants, Business Advisers, Corporate Finance and Tax Specialists, based In The UK