Autumn Statement see-saw for Research and Development tax relief

Tax relief for Research and Development (R&D) expenditure changes from 1 April 2023.

Relief under the hitherto particularly generous, small and medium- sized enterprises (SME) scheme goes down. Relief for the Research and Development Expenditure Credit (RDEC) goes up.

The deduction rate for qualifying expenditure under the SME scheme drops to 86% from 130%. The SME cash repayment credit, which can be claimed for surrenderable losses, falls to 10% from 14.5%. On the other hand, RDEC, used mainly by larger companies, rises to 20% from 13%.

The rebalancing is driven by government fears around abuse and fraud under the SME scheme, and starts to close the gap between the two schemes. It means that from next year, an R&D-qualifying spend of £100 will generate £15 tax saving under the RDEC scheme, and £21.50 under the SME scheme (assuming a 25% corporation tax rate). This contrasts with the current regime: with corporation tax at 19%, the saving would be £10.53 under RDEC at the current rates, and £24.70 under the SME scheme. The government has stated that this ‘improves the competitiveness of the RDEC scheme, and is a step towards a simplified, single RDEC-like scheme for all.’

Despite these developments, appropriate use of R&D tax relief can still contribute significantly to business cash flow and liquidity. We should be pleased to help you explore its potential for your company.