Autumn Statement 2022 – Important R&D tax changes announced

It looks like we are still on the tax merry go round

It looks like we are still on the tax merry go round. Tax cuts a few weeks ago, which were swiftly reversed and today the Chancellor announced increases again.

The reform of the R&D tax relief scheme, which was referred to in the Spring Budget continues.

A reform of the R&D tax relief scheme has been announced with effect from 1 April 2023. The reforms aim to tackle fraudulent claims being made, in particular under the SME scheme.

SME scheme changes

The SME scheme will be amended to reduce the repayable credit rate from 14.5% to just 10%.

On top of this, the additional deduction under the SME scheme will be reduced from 130% currently (which therefore gives a total 230% tax relief for expenditure on R&D) to only 86%, reducing the total tax relief for expenditure on R&D to just 186%.

RDEC scheme changes

For those not eligible to claim under the more generous SME scheme, (due to their size or due to grant funding for example received for their project), the RDEC scheme currently provides a taxable credit at a rate of 13%. This rate will however be increased from 13% to 20%.

The Chancellor announced that these reforms look to improve the effectiveness of the support provided to taxpayers who are innovative and aims to make the RDEC scheme more competitive.

The reforms are also part of a move towards a single scheme for R&D incentives for all which will be more akin to the RDEC scheme.  This alignment towards RDEC is a deliberate move as the SME scheme is considered vulnerable to abuse. A consultation will open in respect of designing a single scheme ahead of the next budget.

The changes to expand qualifying expenditure to include data and cloud costs and refocus support to innovation carried out in the UK will be retained and will be legislated for in the Finance Bill 2023 in the Spring.

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