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:
- large companies and SMEs carrying out funded R&D or on a subcontract basis for large/non-UK companies - 15% post-tax;
- profitable SME enhanced relief to reduce tax liability - 16% to 21.5% (depending on CT rate applying);
- loss-making SME claiming credits at R&D intensive rate (as noted above) - 27% payable credit; and
- 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.