01633 860 021 hello@zest.tax

Autumn Statement 2022: What it means for R&D in Your Business 

by Adam Park | November 24, 2022

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

The rate of the large company scheme, the R&D expenditure credit (RDEC) will be increased from 13% to 20%, while the deduction rate for the SME scheme will be reduced from the current 130% to 86%. Also for the SME scheme, the payable tax credit rate will fall from 14.5% to 10%.

The Chancellor commented “Despite raising revenue, the OBR has 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.” 

What Do The Changes Made in The Autumn Statement Mean For R&D? 

The government has committed to increasing the budget to support R&D overall, so there is likely to be increased opportunity for funding through grants. However - for SMEs, particularly those not currently turning a profit, this is a noticeable reduction in the cash benefit of making a claim through the R&D tax relief scheme. There will of course be ways of managing the change, such as carrying more loss forward to future years.

And it is also important to state, with these changes the R&D tax credit will still remain a substantial form of tax relief. The tax credit will still provide significant funds to support innovation, including refunds of up to 21% of R&D expenditure for SME’s.

The changes will only apply to qualifying expenditure falling after 1st April 2023:

So what will be the impact of these changes:

  • Companies paying corporation tax can currently claim back 24.7% of their R&D expenditure. This rate will now depend on whether they're paying the 19% or 25% rate of corporation tax.
  • Companies paying the higher rate of corporation tax will claim back 21.5% of their expenditure. Whereas companies with smaller profits will claim 16.3%.
  • The biggest shock will be for companies making losses - who will be able to claim 18.6% of their losses, compared to 33.4% previously. This will massively increase their incentive to carry losses forward (instead of surrendering them for a payable tax credit).

The government is effectively making the payout for loss-making companies less generous. This is in response to higher levels of fraud in the scheme. But it is unlikely to have a material effect in reducing fraud rates. Especially in the short-medium term, whilst those putting in fraudulent claims try to find a new place to focus!

Will R&D tax cuts in the Autumn Statement hit SMEs the hardest?

For SME's the enhanced deduction will be reduced from 130% to 86%. If you're profit-making, this reduction will be partly counteracted by the higher rate of Corporation Tax. For loss-making companies looking to take the payable tax credit - the reduction is compounded by a fall in the payable tax credit rate from 14.5% to 10%.

Whilst most will welcome increased scrutiny of the incentive. The decrease in the rates for SME claimants is counter-intuitive to the government’s messaging on growth through innovation.

These changes will impact many companies in the earlier stage of innovation or loss-making innovators as the benefit rate will reduce from 33p in every £1, to around 19p. Conversely, for those larger businesses who qualify for the scheme, they will see a substantial increase in the tax saving.

While these changes might sound daunting - our team are on hand. We can help with any queries you might have on the proposed amendments and how it might affect your business. 

What about RDEC (the large company scheme)?

The rate will increase from 13% to 20% which will provide a substantially improved benefit to companies eligible for RDEC. These include large companies, SMEs who are sub-contracted to perform R&D for large companies, and SMEs who are claiming state aid.

What does it mean if you’re currently processing an R&D Claim? 

These changes are scheduled to take effect from April 2023, so there is time to plan. It will impact different businesses in different ways. Under the SME scheme, if you are expecting to be loss-making at this stage, the changes could reduce future claims by up to 44%. However, if you are profitable the reduction should be only 13%. Your R&D tax advisor should be able to help, and we will be reaching out to clients with specific advice.

It is also important to state, with these changes R&D will still remain a substantial form of tax relief. The scheme will still provide significant funds to support innovation, including additional refunds of up to 21% of R&D expenditure.

Other news stories

R&D Tax Relief – 4 Upcoming Changes to the Scheme 

by Adam Park | September 22, 2022

HMRC has recently set out its upcoming reforms to the R&D Tax Relief schemes that will form part of the next Finance Bill. Alongside some minor legislation updates to address anomalies in the schemes, the reforms as they stand will cause four major changes to the schemes. The first of which could catch out start-ups, […]

Can I claim R&D tax credits if I’m a loss making company?

by Adam Park | September 9, 2022

If your company has been making a loss, it’s still worthwhile making a claim for R&D tax credits. This is sometimes misunderstood with people thinking that a company needs to be profitable to benefit. In fact, applying for R&D tax credits as a loss making company might be the most beneficial way to get the most from the scheme.

R&D Tax Credits in Construction

by Adam Park | July 4, 2022

Running a building project is never easy. In fact on many projects – builders, site managers, foreman, construction directors and draughtsman are involved in solving problems for their clients. And solving problems for their clients could mean that their company qualifies for R&D tax credits for construction. The proof is often in the pudding – […]