In March, Jeremy Hunt announced his second fiscal statement and first Budget since becoming Chancellor against a backdrop of fragile public finances, an ongoing cost of living crisis, and increased Government borrowing.
We covered how this Budget stacks up against the Government’s priorities – and what it means for people and businesses across the UK – in our March Spring Budget Report, but we wanted to take a deeper dive into some of the R&D changes, and what it means for your business.
New to R&D?
R&D (research and development) pertains to companies that spend money developing new products, processes or services, or enhancing existing ones, and may be eligible for R&D tax relief. Put simply, if you’re spending money on innovation, you may be able to make an R&D tax credit claim.
This claim is submitted through the company’s corporation tax return (the CT600 self-assessment form) and reduces how much of the company’s profits are chargeable to corporation tax (where the claim is submitted under the SME scheme).
The ‘back to work’ budget
During the Autumn Statement in 2022, the Chancellor announced measures to reduce fraudulent research and development claims, resulting in a number of changes to the scheme amid a sharp increase in enquiries being raised by HMRC. In the Spring Budget, however, Hunt said the Government will introduce a new scheme for loss making, “R&D intensive” SMEs:
- Companies that spend at least 40% of their total expenditure on R&D will be considered R&D intensive. These R&D-focused SMEs will be able to claim a higher payable credit rate of 14.5% rather than the reduced 10% announced in the Autumn Statement. In practice, this means they’ll be eligible to claim back £27 for every £100 they spend. These changes are part of a £1.8bn support package for development and investment in the UK’s tech pioneering companies. The practical problem around this change, is that the relief is effective for accounting periods starting on or after April 1st 2023, even though it will not be legislated for until the Finance Bill 2024. Companies will therefore need to claim the current 10% rate, and then submit an amended return, or alternatively delay submission of their claim
Another key measure to consider from the Spring Budget – dubbed the ‘back to work’ budget by the media – is the acceleration of additional information requirements. The previously announced requirements will now apply to claims made from August 1st 2023, irrespective of the accounting period end of the claim. As such, R&D claims submitted from August 1st 2023 will need to be submitted alongside a digital ‘Additional Information Form’. Because of this, there is likely to be a significant increase in the number of project technical descriptions required to support claims. For more detailed guidance on this, read our full, in-depth guide on the additional information form.
Overseas restrictions and sector growth
The previously announced restrictions on overseas R&D activities is now due to come into effect from April 1st 2024, one year later than proposed. This is to allow for consideration over how these restrictions will interact with the design of a new single R&D regime, which has been subject to recent consultation.. Nevertheless, from April 1st 2024, expenditure on overseas R&D activities will generally no longer be qualifying, with exception in situations where conditions necessary for the R&D are not possible in the UK.
While the increase in the RDEC rate is a positive development, Gravita’s R&D Director, Kate Greenhough, says it is disappointing news that the SME scheme has become less lucrative for many deserving companies, especially considering that these companies innovate (and continue to innovate) in an attempt to drive the economy forward whilst still feeling the devastating effects of COVID-19.
Next steps
If you’re not already claiming R&D, you could be one of the estimated 90% of eligible companies that aren’t currently taking advantage of the R&D scheme. If you’re unsure if you’re entitled to a claim, or you’d like more information on how these changes will affect you or your business, then please do get in touch with us.
Not yet a client with Gravita? Join us in embracing a new era of accounting by contacting one of our industry experts.
