In the 2022 Autumn Statement, Jeremy Hunt announced some significant changes to UK tax policy. These will affect both individuals and businesses in an effort to bring stability and encourage growth in the UK economy. One area where changes are confirmed is the UK’s R&D Tax Relief scheme.
What changes can you expect to the R&D Tax Relief scheme in 2023?
Changes to the rate of R&D Tax Relief from 1 April 2023 were announced in the Autumn Statement. This means, if you are an SME, you may want to think about advancing R&D spending into Q1 of 2023.
How the SME rate is changing
The current rate for SMEs is an extra deduction of 130% on qualifying R&D expenditures. From 1 April 2023, this will be reduced to 86% and based on the increased Corporation Tax rate of 25% (currently 19%), the net effective R&D rate for relief is reduced from 24.7% to 21.5%.
Put simply, for every £100,000 spent on R&D which is now worth £24,700, it will reduce to £21,500.
How will loss-making companies be affected?
For loss-making companies who surrender losses for tax credits, the surrender value of 14.5% will be reduced to 10% and the net benefit reduced from a potential maximum of 33% down to 18.6% - £33,000 down to £18,600 based on the £100,000 R&D expenditure scenario.
How can companies make the most of the relief?
One way to make the most of the 130%/14.5% relief for SMEs would be to consider advancing R&D projects into Q1 of 2023 and maximising any large outlays on expenditure, be it wages or buying materials, into the first quarter of 2023 and ensuring these costs are actually incurred in this period, with records kept.
Making sure your R&D Tax Reliefs are done properly
It’s no secret that HMRC is cracking down on error-strewn or potentially fraudulent R&D Tax Relief Claims in the UK, both past and present. It has never been more important to make sure your R&D Tax Relief claims are done properly, by a qualified specialist.
The Radius team at Shorts Chartered Accountants offers a free, no-obligation R&D Tax Relief claim review service. This review will be conducted by Darryl Hoy, a former HMRC R&D tax inspector, who has years of experience identifying potential problems with claims.
If you have questions about R&D Tax Relief claims, whether before or after the changes on 31st March 2023, we recommend getting in touch for advice.
Darryl Hoy
Darryl is the Technical Director of the Radius team. He is a specialist in Research & Development tax reliefs, having previously worked at HMRC as an R&D Tax Inspector.
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