Today’s autumn budget ushered some significant changes to the R&D scheme.
Unfortunately, the changes will reduce the benefit for all companies that are claiming through the SME scheme, to varying degrees. The changes will also favour larger companies that are claiming through the RDEC scheme.
Here is a summary of the changes that were announced:
- The cash credit for loss-making companies claiming through the SME scheme will be reduced from 33.35% to 18.6%.
- The benefit for companies paying 19% corporation tax and claiming through the SME scheme will be reduced from 27.4% to 16.3%.
- The benefit for companies paying 25% corporation tax from April 2023 (i.e. their annual profit will be more than £250,000) and claiming through the SME scheme will be will be reduced from 27.4% to 21.5%.
- The benefit for companies that are claiming through the SME scheme and have annual profits of between £50,000 – £250,000 from April 2023 will be variable and calculated using marginal tax rates.
- The benefit for companies claiming through the RDEC scheme will be increased from 10.53% to 16.2%
- Lastly, the benefit for companies that will be paying 25% corporation tax from April 23 and claiming through the RDEC scheme will be increased from 10.53% to 15%.
- Finally, a consultation will be launched on the design of a single R&D Tax Credits scheme, though not much further detail was given on this.
These changes will come into effect from April 2023.
The benefits changes can be summarised in the below table:
| Loss making old benefit |
Loss making new benefit |
19% Tax old benefit |
19% Tax new benefit |
25% Tax new benefit |
|
| SME Scheme | 33.35% | 18.6% | 24.7% | 16.3% | 21.3% |
| RDEC Scheme | 10.53% | 16.2% | 10.53% | 16.2% | 15% |
Analysis
While we understand that high inflation, rising energy prices and bleak economic outlook in the near term have driven these changes, we are disappointed in this approach as it does nothing to target abuse of the scheme. It collectively penalises all SMEs across the board including those who are highly innovative.
These untargeted measures seem especially punitive when taking into account the previous round of changes that scrapped the subcontracting of R&D activities to overseas companies or people.
If you have any questions or concerns about how these changes will affect your specific claiming position, please let us know.