After an Autumn statement that brought challenging news for R&D tax relief claimants, Jeremy Hunt’s Spring Budget has produced more positive outcomes for some businesses as well as providing confirmation on previously announced changes. The main aspects are outlined in brief below.
Research and development intensive companies
The Chancellor announced that a new credit rate will be available to loss-making SMEs whose R&D expenditure constitutes at least 40% of total expenditure. Qualifying companies will be able to claim a payable credit rate of 14.5% for qualifying R&D expenditure instead of the 10% credit rate for companies claiming support under the existing R&D SME scheme. The changes will take effect for expenditure incurred on or after 1 April 2023, with eligible companies able to claim once legislation is in place (it is expected that this will be legislated in Finance Bill 2023 – 2024). This is fantastic news for
loss-making companies that invest heavily in their R&D activities.
Following significant feedback from industry, the previously announced restriction on some overseas expenditure will now come into effect 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 which has been consulted on recently.
Merging of the RDEC and SME schemes
The government is currently considering the responses to its consultation on merging the RDEC and SME schemes which closed on 13 March 2023. No decision has been made but the government intends to keep open the option of implementing a merged scheme from April 2024. Draft legislation on a merged scheme will be published for technical consultation in summer 2023 and a final decision on whether to merge the RDEC and SME schemes will be announced at a future fiscal event.
Previously announced changes
The government confirmed its intention to implement previously announced changes through the Spring Finance Bill 2023 including:
rate changes to both SME and RDEC regimes which were announced last year for expenditure incurred on or after 1 April 2023.
the creation of two new categories of qualifying expenditure for R&D tax relief, on data licences and cloud computing services (for accounting periods beginning on or after 1 April 2023).
the definition of R&D for tax reliefs will be expanded to include all mathematics – clarifying in particular that ‘pure maths’ can qualify (for accounting periods beginning on or after 1 April 2023).
to mandate that companies must inform HMRC of their intention to make a claim for R&D tax relief using a new digital form for claims to relief for accounting periods starting on or after 1 April 2023. Companies which have claimed R&D tax reliefs in the previous three years will be exempted from this requirement.
to require companies to provide a digital additional information form with their claims, supporting HMRC’s compliance work (this will apply to all claims made on or after 1 August 2023).
changes to correct legislation which produces anomalous results.
Whilst the budget has offered good news to small loss-making firms engaged in intensive R&D, and has delayed previously announced changes to the rules on overseas resources allowing better consideration of the consequences and options, many firms will still experience significant reductions in their R&D claims going forward as a result of the rate changes announced in the Autumn. Nonetheless, confirmation that the legislation will be modernised to include data and cloud
computing costs will be welcome news for tech firms, and the addition of mathematics represents a sensible modernisation of the regime. Finally, the need for advance notification of the intention to claim will need to be considered carefully for new claimants, and the long-discussed requirements for further information to be provided in support of a claim seems likely to create the need for more granular preparation in some cases but should not represent a significant challenge for sensibly constructed claims.