Spring Budget 2023: Research and development tax relief updates

Published: Wednesday 15 March 2023

Research and development: additional tax relief for R&D intensive SMEs

Despite the R&D tax relief rate for SMEs reducing from 130% to 86% in the Autumn Statement in November 2022, from 1 April 2023, HMRC is now proposing that ‘R&D intensive’ loss making companies will be able to surrender losses for tax credits at 14.5% as opposed to the 10% they proposed in the Autumn Statement. What this effectively means is that eligible companies will continue to receive £27 from HMRC for every £100 of qualifying R&D investment. However, this will not apply to all loss-making companies as it did before, but to 'R&D intensive' companies which will add a layer of complexity to the calculation of the tax savings available. 'R&D intensive' should apply where 40% of the total expenditure is R&D expenditure. 

In essence, from 1 April 2023, there will be four scenarios affecting the cash outcome. These, along with an indication of the likely cash effect, are as follows: 

  1. large companies and SMEs carrying out funded R&D or on a subcontract basis for large/non-UK companies - 15% post-tax; 
  2. profitable SME enhanced relief to reduce tax liability - 16% to 21.5% (depending on CT rate applying); 
  3. loss-making SME claiming credits at R&D intensive rate (as noted above) - 27% payable credit; and 
  4. loss-making SME claiming credits but ineligible for R&D intensive rate - credit of 18.6% (the 10% payable tax credits, as previously announced ,will be available for non-R&D intensive companies). 

It should be noted companies will not be able to claim the additional R&D intensive credit until the legislation is ultimately enacted at some point down the line in a future Finance Bill.

Research and development: delay implementation of overseas restrictions by one year

The Autumn Statement in November proposed that from 1 April 2023, expenditure in relation to overseas subcontracting and non-UK payroll externally provided workers will no longer be qualifying expenditure for R&D tax relief purposes. However, today's Budget has delayed the start of this change to 1 April 2024.

Content image: /uploads/team/unknown.jpg Nick Haines
Nick Haines
Partner, Tax and Property
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Content image: /uploads/team/unknown.jpg Lucy James
Lucy James
Senior Manager
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