R&D relief slashed – Time to plan

Chancellor Jeremy Hunt has announced a series of changes to the UK research and development (R&D) tax credit regime, including a cut to the deduction and credit rates for the SME scheme.

The R&D SME scheme enhanced deduction rate will be cut to 86 per cent from the current 130 per cent, and the payable tax credit rate cut to 10 per cent from 14.5 per cent.

However, the rate of the separate R&D expenditure credit – also known as RDEC – will increase significantly, from 13 per cent to 20 per cent.

The changes to the SME scheme mean that if you are a loss-making company, you will now only receive £18.60 for every £100 spent from April next year, compared to £33.35 per £100.

These changes are intended to reduce abuse in the R&D tax system, particularly claims for SMEs, which have been the spotlight of several investigations by HM Revenue & Customs (HMRC).

They are scheduled to take effect from 6 April 2023, so there is still time to plan, and it may make sense to bring forward R&D expenditure, where possible, to benefit from more favourable deductions and credits.

April 2023 also sees changes to the review and approval process for R&D claims. For any claim commencing on or after 1st April 2023, companies will need to notify HMRC within six months of the end of the accounting period that they intend to make a claim for R&D tax relief. If you have claimed R&D tax relief within the last three years you are not required to pre-notify HMRC.