Autumn Statement 2022 – what it means for R&D tax relief schemes

The Chancellor, Jeremy Hunt, released the Treasury’s Autumn Statement on 17th November which unveiled a series of measures to shore up the UK’s finances and offset an estimated fiscal hole of approximately £55 billion.

A series of changes to the UK research and development (R&D) tax relief regime were announced, including a slashing of rates for the SME scheme. The Chancellor has cut the SME scheme enhancement rate to 86% (from 130%) and the tax credit rate to 10% (from 14.5%) and increased the RDEC scheme rate to 20% (from 13%). The new rates legislated in the Autumn Finance Bill 2022 will be applicable for expenditure on or after 1st April 2023.

“Despite raising revenue, the OBR have confirmed that these measures have no detrimental impact on the level of R&D investment in the economy. Ahead of the next Budget, we will work with industry to understand what further support R&D intensive SMEs may require.”
Chancellor Jeremy Hunt

The Positives

  • The Government has repeated its commitment to R&D and its target to increase total public and private R&D investment to 2.4% of GDP by 2027.
  • The mooted simplification of R&D tax by moving towards a single RDEC-like scheme for all looks ever closer.
  • The 20% RDEC rate increase will benefit British businesses and help better target relief to certain sectors.

The Negatives

  • SMEs who legitimately claim and rely upon R&D tax relief (SME scheme) will face an enhancement rate cut of 33% (130% to 86%) while those claiming a tax credit reduction will see a 31% cut (14.5% to 10%).
  • The changes may discourage SMEs from developing new technologies at a time when innovation is critically needed.
  • Increasing RDEC rates risks further consolidating R&D reliefs to larger businesses in London and the southeast.

What do the reforms mean for SMEs?

The government announced on 14th October that Corporation Tax (CT) will increase to 25% from April 2023 for profits over £250,000. Companies with profits of £50,000 or less will pay a small profits rate (SPR) of 19% and a tapered increase in the effective CT rate will apply to profits between £50,000 and £250,000. The CT increase will offset a portion of the R&D enhancement rate cut for companies with profits over £50,000 due to its role in the final tax relief calculation.

In numbers (based on £100k R&D expenditure):

Now As of 1 April 2023
SME Scheme
Profit-making benefit (£250k+)
£24,700 £21,500
SME Scheme
Loss-making benefit
Max £33,350 Max £18,600
RDEC Scheme (assuming 25% CT against >£250k profits) £10,530 £15,000

The changes to the SME scheme will hit small businesses and R&D intensive start ups the hardest at a time when growing their R&D investment is especially challenging. We are encouraged by the government’s long-term commitment to expanding R&D investment across the economy, but smaller businesses will rightly feel unfairly targeted.

Despite the rate adjustments, the R&D Tax Relief SME scheme will continue to provide innovative businesses with vital funds for reinvestment going forwards, albeit at a reduced rate. Businesses and accountants have a few months to plan before 1st April 2023, the same day when new reforms to tackle abuse and improve compliance will come into effect.

Get in touch

If you have any questions about the reforms, R&D tax relief in general, or how to make a claim, contact our tax professionals on 0161 904 0044 or team@costcare.co.uk.

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