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Spring Budget 2023: R&D Relief

Spring Budget 2023: R&D Relief
the R&D expenditure credit ("RDEC") claimable by large companies would be increased from 13% to
the enhanced relief on R&D expenditure claimable by SMEs would be reduced from 130% to
the SME tax credit rate would be reduced from 14.5% to


Further announcements were made in the Budget today in relation to changes to R&D relief.   These announcements follow on from the recent consultations in relation to R&D relief and the changes made in recent fiscal statements.

The Chancellor announced today a new enhanced R&D relief for loss making small and medium sized enterprises ("SMEs") with intensive R&D expenditure.   This new enhanced relief is being implemented partly in response to the rate changes to R&D relief announced in the 2022 Autumn Statement and partly in response to the consultation on R&D launched in January this year and which closed just before the Budget.

Autumn 2022 Rate Changes

In the 2022 Autumn Statement it was announced that, with effect from 1 April 2023:

  • the R&D expenditure credit ("RDEC") claimable by large companies would be increased from 13% to 20%;

  • the enhanced relief on R&D expenditure claimable by SMEs would be reduced from 130% to 86%; and

  • the SME tax credit rate would be reduced from 14.5% to 10%

The reduction in the SME relates of reliefs was clearly not welcome but the announcement today should go some way towards mitigating the impact of the rate changes.

R&D Credit for Intensive SMEs

Under the new relief the tax credit rate for SMEs meeting the R&D intensity condition would be 14.5% (so reverting back to the rate prior to the reductions announced in Autumn 2022).  An SME will meet the R&D intensity condition if its ratio of R&D expenditure to its total expenditure (subject to certain adjustments) is 40% or more, tested by reference to the accounting period in respect of which the relief is being claimed.

To prevent any manipulation of the intensity ratio the R&D expenditure and total expenditure of connected companies will be calculated on an aggregated basis.  The technical note published today also confirms that, as is to be expected with any new tax measure, there will be a targeted anti-avoidance rule included with the legislation.

The enhanced credit will be claimable in respect of expenditure incurred on or after 1 April 2023, although as this has not yet been legislated, SMEs will need to wait until the legislation has been published until they can actually claim the credit.   The credit can then be claimed in the normal tax return (where it is submitted after the date on which the legislation comes into force) or by amendment to the tax return, within the normal time limits.

The credit will need to be claimed on the Additional Information Form (see further below) which is submitted with the company's R&D Claim.

January 2023 Consultation

In January this year HM Treasury launched a consultation on the reform of the R&D regimes to create one regime applicable to both SMEs and large companies.   The consultation suggests the regime would be designed along the lines of the existing above the line RDEC scheme but  also included the suggestion of enhanced relief for R&D intensive SMEs which has led to the proposal above.

Generally, responses to the consultation have welcomed the idea of one scheme as a simplification from the current position and agreed with the design of this scheme as an above the line credit.  However, several respondents have noted that there are reasons why it makes sense to have a more beneficial regime for SMEs.   The consultation closed on 13 March 2023 so we will need to wait for HM Treasury's response.

Autumn Budget 2021 Changes

Various changes to R&D reliefs were announced at the Autumn 2021 budget. Draft legislation for these changes was published in July 2022 with draft HMRC guidance being published in December 2022. The proposed changes were:

  • Extending qualifying R&D expenditure to cover data licences and cloud computing

  • Mandating companies claiming R&D relief who have not done so within the past 3 years to notify HMRC of their intention to make a claim on a new digital form

  • Requiring companies claiming R&D relief to provide a new Additional Information Form providing more detail in relation to their claim to support HMRC's compliance work; and

  • Restricting relief on R&D expenditure incurred outside the UK (subject to certain exceptions)

It was confirmed today that the changes in the first two bullets above will come into force from 1 April 2023 as planned and the new Additional Information Form will be required for claims made after 1 August 2023 (and presumably for all claims for the new enhanced intensive R&D credit). However, in what will come as welcome news for many businesses, the requirement for the expenditure to incurred in the UK will now be delayed until 1 April 2024. This is to allow the government to consider how this restriction could factor into the potential new R&D regime arising following on from the January 2023 consultation.

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