Measure
The government announced a new rate of relief for certain loss-making small and medium-sized enterprises (SME) claimants. This change is intended to encourage innovation in the UK by providing further support for R&D intensive SMEs. This is part of a package of wider R&D reforms which were announced in Autumn Budget 2021 which seek to ensure the reliefs are fit for purpose.
It was re-confirmed that the Spring Finance Bill 2023 will legislate for the R&D reforms announced at Autumn Budget 2021. Of significant note in today’s announcements is the earlier introduction of the mandated additional information form that must accompany R&D claims and a delay to the introduction of the restriction regarding overseas expenditure.
Furthermore, the consultation on the merging of the regimes closed on 13 March 2023 and the government confirmed it will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the summer, although a final decision on whether to merge the RDEC and SME schemes has not yet been made.
The new rate of relief will apply to SMEs which meet the “high-intensity” eligibility criteria and claim relief via the repayable tax credit. The eligibility criteria requires an SMEs “intensity ratio”, calculated by comparing its qualifying R&D expenditure as a percentage of total expenditure, to be at least 40%. Companies meeting the criteria will be able to claim the repayable tax credit at the higher rate of 14.5% (equivalent to up to 27p in the pound) compared to 10% for other SME claimants (equivalent to up to 19p in the pound).
The other measures will impact all R&D claimants.
The rate change for loss-making R&D intensive SMEs will take effect for expenditure incurred on or after 1 April 2023.
The mandated digital additional information form, which sets out numerous requirements for claimants including details of the tax agent, senior officer sign-off and a prescribed number of project descriptions, will now come into effect for all claims submitted from 1 August 2023.
The restrictions on some overseas expenditure in R&D tax reliefs will now be delayed and come into effect from 1 April 2024 instead of 1 April 2023, subject to any further announcements regarding any proposed single R&D scheme.
The government has cited that it remains committed to supporting R&D and recognises the important role that R&D plays in stimulating growth and bringing about associated spill-over benefits for the UK economy. It is good news that views of claimants and key stakeholders have been considered in delaying the potential restrictions on overseas expenditure and that, as promised, today’s announcements have gone some-way to alleviate the impact of the reduced SME rate for highly R&D intensive businesses.
Whilst the other measures have been previously announced, there are a number of changes for businesses to understand particularly with the additional information form being adopted sooner than originally anticipated and further changes still to be announced with respect to a merged scheme.