Chancellor Jeremy Hunt’s Spring Budget 2023 supports the government’s economic plan to halve inflation, reduce debt and grow the economy.
Highlighting the government’s commitment to economic growth, the Chancellor reasserted the government’s ambition for Great Britain to become a global scientific and research superpower, and he committed to £1.8 billion for R&D tax credits.
Our Head of Tax, Jon Yeomans, has reviewed the supporting documents and highlighted 5 key changes that will materially affect companies claiming under the R&D tax scheme. He’ll dig into these in detail in our Spring Budget 2023 R&D Debrief webinar on 23 March at 10 AM – but here are the headlines:
1) Additional tax relief for R&D-intensive SMEs
In the Autumn Statement 2022, the government announced the reduction of the SME R&D tax relief enhancement rates from 130% to 86% and the lowering of the SME tax credit rate from 14.5% down to 10%.
However, it also promised to consider additional support for R&D-intensive SMEs – and today’s news reveals that these SMEs will be able to take advantage of additional tax relief.
From 1 April 2023, a higher rate of relief for loss-making R&D-intensive SMEs will be introduced. SME companies with qualifying R&D expenditure that is at least 40% of their total expenditure will be able to claim a higher payable R&D tax credit rate of 14.5% for it (rather than the reduced 10%).
This means that loss-making R&D-intensive SMEs will receive a cash credit of £27 for every £100 spent on R&D expenditure, instead of the reduced rate of £18.60 available to non-R&D-intensive SMEs.
Read more about this proposed policy on HMRC’s website.
2) Delay to restrictions on overseas expenditure in R&D tax reliefs
The previously announced restriction on some overseas expenditures will now come into effect from 1 April 2024 instead of 1 April 2023.
EmpowerRD called for delaying the restriction of relief for overseas R&D expenditure by at least a year until April 2024 in our submission to the House of Lords last year – and we are delighted to see the government take action on this.
3) Timing of Additional Information Form requirements changed
Until today, claimants were going to be asked to submit a new Additional Information Form only from the end of accounting periods beginning on or after 1 April 2023. The Chancellor announced today that an Additional Information Form will now be required for all claims made on or after 8 August 2023.
The announcement on this in the supporting Spring Budget documentation effectively brings forward the mandatory introduction of this requirement for many companies. However, as you would expect, EmpowerRD already provides HMRC with most of the information that will be required.
4) Update on the ongoing R&D tax relief review
The government also provided an update on its consultation about the merging of the R&D Expenditure Credit (RDEC) and SME schemes, which closed on 13 March.
The government is currently considering the responses and is yet to make a final decision. However, they intend to keep open the option of implementing a merged scheme from April 2024 and will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the summer, with a summary of responses to the consultation.
Any further changes as a part of the ongoing R&D tax relief review will be announced at a future fiscal event, including a final decision on whether to merge the RDEC and SME schemes.
5) Previously announced R&D tax relief changes will be going ahead in April 2023
Come 1 April 2023, the R&D tax relief will broaden its qualifying expenditure to incorporate cloud and data costs and will implement new R&D tax relief rates for the SME and RDEC scheme, as previously announced.
These changes will be included in the Spring Finance Bill 2023, which is expected to be published on 23 March 2023.
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