The UK's Research And Development tax relief scheme has been a powerful growth catalyst for businesses across the country. In fact, the latest figures from HMRC show that a record £7.6bn was claimed in total relief for the 2021-2022 tax year ...
This will result in a single scheme that combines the existing incentive for small and medium-sized enterprises (SMEs) with the research and development expenditure credit (RDEC) for larger businesses!
While the government's objective to 'rebalance' the different rates available has been welcomed by businesses, there are clear winners and losers in the changes. Most SMEs will see a reduced benefit from the new merged scheme, as the government aims to level the playing field between SMEs and larger businesses.
Accountants and tax advisers will be crucial in helping their clients navigate these changes and plan ahead. With several material changes in the works, understanding the complexities of the new scheme will be vital for businesses to continue accessing R&D reliefs.
One of the key changes in the merged scheme is the continued existence of two separate incentives. The R&D-intensive SME scheme, introduced in 2023, will continue to operate under the current SME model. This scheme is only applicable to loss-making SMEs that spend a set proportion of their total business expenditure on Research And Development.
In the Autumn Statement 2023, the government announced a reduction in the qualifying threshold for this scheme from 40% to 30% of a company's total expenditure. This means that more loss-making SMEs will qualify as R&D-intensive, giving them access to enhanced financial relief to support their growth and development.
In addition, there will be a one-year grace period for companies that dip below the 30% R&D intensity threshold. This will provide businesses with longer-term financial planning and investment opportunities, as they won't have to worry about moving in and out of the R&D-intensive regime every year.
While the changes to the R&D-intensive SME scheme are a step in the right direction, there is still a noticeable disconnect between the government's overall innovation policy and its implementation. The reduction in rates for SME relief, followed by the changes to the R&D-intensive SME scheme, highlights the need for a more cohesive approach to supporting and incentivizing innovation in the UK.
Businesses must also be aware of the other changes in the merged scheme, such as introducing a cap on the payable credit for SMEs. This could potentially limit the benefit for businesses with large R&D expenditures, as they will no longer be able to claim the full amount of their qualifying expenditure.
This means that non-UK companies with a UK presence will also be eligible for the relief, opening up new opportunities for international businesses to invest in Research and Development in the UK.
Businesses should work closely with their accountants and tax advisers to understand the complexities of the new scheme and plan ahead.
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