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 ...
The UK's Research And Development tax relief scheme has been a powerful growth catalyst!
However, concerns about abuse of the scheme led to a consultation in early 2021, which resulted in the decision to merge the two available schemes. This merged scheme, which will be introduced for accounting periods beginning on or after the 1st of April 2024, aims to streamline the incentive and protect it from abuse in the future.
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.
"The government has proposed to remove the requirement for businesses to have a UK presence!"
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.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about the changes to Research and Development Tax Relief, it may be a great idea to give me a call on 01908 774323 and let's see how I can help.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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