There is a lot of R&D tax relief change happening so you would be forgiven for losing track! The below captures the key 2023 budget highlights together with a reminder of other changes coming shortly.
If you note only one thing, I recommend filing your R&D claim prior to 1 August 2023 if you can, to avoid the extra admin of having to complete the new digital form. Call me pessimistic, but I suspect there will be early teething problems that will delay submissions, claim processing and repayments. You have been warned!
Budget 23 – Increased relief for ‘R&D intensive’ companies
As a small concession to ‘R&D intensive’, loss making SMEs, from 1 April 2023, a higher rate of relief will be introduced. This provides a 27% credit, increased from the soon to be 18.6%, but still not as generous as the current 33% credit.
SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure will be able to claim the higher relief.
SME R&D tax relief
In summary, the effective cash tax value* of the SME regime was/will be as follows:
| Up to 31 March 2023 | From 1 April 2023 | From 1 April 2023 | |
| All SMEs | ‘Normal companies’ | R&D intensive companies | |
| Profitable | 24.7% | 21.5% | 21.5% |
| Losses | 33.3% | 18.6% | 27% |
*See below for those interested in how these percentages are calculated!
Delay to restrictions on overseas expenditure in R&D tax reliefs
The previously announced restriction on some overseas expenditure will now come into effect (we assume for accounting periods starting) from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief.
Cloud and data costs / mathematics
Some data licenses and cloud computing services costs qualify for expenditure from 1 April 2023. Mathematics as a field now qualifies for R&D purposes too.
Merging the R&D regimes together
The government’s consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes closed on 13 March. The government will publish draft legislation on a merged scheme on ‘legislation’ day in July 23.
Additional information / Digital form
All claims filed on or after 1 August 2023 will require the new digital form to be completed.
Do get in touch if you have any questions.
| * SME tax relief – how the value is calculated
Profitable company: Today: £100 spend x 130% additional deduction x 19% Corporation Tax = £24.70 tax saving After 1 April 23: £100 spend x 86% additional deduction x 25% Corporation Tax = £21.50 tax saving Loss making company: Today: £100 spend x 230% deduction x 14.5% payable credit rate = £33.35 repayment After 1 April 23: £100 spend x 186% deduction x 10% payable credit rate = £18.60 repayment Loss making R&D Intensive company: After 1 April 23: £100 spend x 186% deduction x 14.5% payable credit rate = £26.97 repayment |
