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R&D tax relief is undergoing some notable reforms, particularly for SMEs, following Chancellor Jeremy Hunt's Autumn Statement.
R&D tax relief has come under scrutiny recently following a concerning rise in abuse, particularly under the SME scheme. Consequently, new Chancellor Jeremy Hunt has looked to reduce the relief available to SMEs in a move that’s set to tighten R&D tax claims going forward.
Hunt’s 17th November Autumn Statement recognised the unprecedented challenges UK businesses face against a backdrop of spending cuts and tax hikes. Earlier this year predecessor Rishi Sunak outlined his plan for R&D tax credit reforms. At the time, Sunak’s aim was to expand and improve the relief in order to bring UK investment in growth more in line with EU countries like France and Germany. As part of this, R&D tax relief would be expanded so that eligible R&D expenditure included data and cloud computing expenses. However, the scheme was also refocussed so that R&D spending that took place in the UK (rather than abroad) was prioritised.
Jeremy Hunt has now revealed that the R&D SME scheme enhanced deduction rate will be cut to 86% from the current 130%, and the payable tax credit rate cut to 10% from 14.5%. However, the rate of the separate R&D expenditure credit - also known as RDEC - will increase significantly, from 13% to 20%.
The Corporation Tax savings as a percentage of expenditure will therefore be reduced as follows (effective on expenditure incurred on or after 1st April 2023):
The Chancellor’s latest move is expected to be met with criticism from business groups. Last month, the Federation of Small Businesses wrote to the Chancellor advising him against targeting a scheme that “has been working, especially one of such importance for growth”. It added that R&D Tax Credits had been “a huge part of [the SME] success story”, saying that “the attempt to pull the rug out from small business innovation seemed to us a misreading of scant data points”.
Lisa Waller, Director of Corporate Tax Incentives UK & IE, said: “Today’s unwelcome but not unexpected reduction in rates is a big blow for SMEs. Smaller, innovative but loss-making companies will be hit the hardest while larger companies reap the rewards. It is a very unsettling time with more reforms on the way.”
A full review of support for SME R&D investment is expected before the next Budget. We will of course keep our website updated.
Has your R&D tax relief claim attracted the attention of HMRC? Don’t panic.
Enquiries into R&D tax relief claims by HMRC are on the rise. Our highly-qualified team will provide the utmost support to secure a beneficial resolution for your HMRC R&D enquiry, so that you can rest assured knowing your business is in safe hands.
We are well equipped to offer actionable advice on any R&D tax relief enquiries made by HMRC as well as provide proactive reviews that can help ensure complete peace of mind during these uncertain times.
If you’ve been contacted by HMRC about your R&D Tax Credit claim, or you’d simply like to know more, please do get in touch using our contact form or call our friendly team on 0207 118 6045.