Relief for Research & Development (R&D) expenditure will change from 1 April 2023.
Whilst relief under the hitherto particularly generous, small and medium- sized enterprises (SME) scheme will go down, relief for the Research & Development Expenditure Credit (RDEC) is going up.
The deduction rate for qualifying expenditure under the SME scheme drops to 86% from 130%. The SME cash repayment credit, which can be claimed for surrenderable losses, falls to 10% from 14.5%. On the other hand, RDEC, used mainly by larger companies, rises to 20% from 13%.
Rebalancing fraud and abuse of the R&D tax credits SME scheme
The rebalancing is driven by government fears around abuse and fraud under the SME scheme, and starts to close the gap between the two schemes.
It means that from next year, an R&D-qualifying spend of £100 will generate £15 tax saving under the RDEC scheme, and £21.50 under the SME scheme (assuming a 25% corporation tax rate). This contrasts with the current regime: with corporation tax at 19%, the saving would be £10.53 under RDEC at the current rates, and £24.70 under the SME scheme.
The government has stated that this ‘improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all.’
Despite these developments, appropriate use of R&D tax relief can still contribute significantly to business cash flow and liquidity. If you would like to discuss R&D expenditure and tax credits, please get in touch. Enquire online or contact one of our offices.