Autumn Statement 2023 – R&D tax credits reform to one scheme

Today Chancellor of the Exchequer Jeremy Hunt announced that the existing two schemes that we have for R&D tax relief, the SME R&D tax credits scheme and the Research and Development expenditure credit (RDEC), will be replaced by one merged... Read more

Today Chancellor of the Exchequer Jeremy Hunt announced that the existing two schemes that we have for R&D tax relief, the SME R&D tax credits scheme and the Research and Development expenditure credit (RDEC), will be replaced by one merged simplified scheme.

When does the new merged scheme come into effect?

For accounting periods beginning on or after 1 April 2024.

What is the new merged scheme?

The new merged scheme will have a single set of qualifying rules and will remove the need for a list of qualifying bodies currently set out to be able to claim under the RDEC scheme.

The new scheme will be more akin to the existing RDEC scheme.

Contracted out work

Legislation will be brought in to allow the decision maker to claim for R&D work, where contracted out work takes place as part of the project. Therefore, where a company with a valid R&D project contracts a third party to undertake some of the (qualifying) work connected with their R&D project, the company may claim the relevant (qualifying) costs of that contract. The company contracted to do that work may not claim for R&D activities which delivers the project outcome for another company’s project.

If a company is contracted to do work for another company, but the work does not form part of R&D for the customer and was instead initiated by the contractor, then the contractor may be able to claim relief for their work, if they meet the requirements of having valid R&D which is otherwise eligible for tax relief. This is considered an essential element.

Subsidised expenses

As a result of the changes, this legislation will no longer be relevant as it currently is for the SME scheme. Therefore, if a company receives a grant or funding, this will not reduce the amount of support available under the merged scheme.

Notional tax

As with the current RDEC scheme, payments under the merged scheme will be reduced via a notional tax, with companies able to set off the amount against tax bills in future or current periods.

SME intensive scheme

As announced at the Spring Budget 2023, a company is considered R&D intensive where its qualifying R&D expenditure is 40% or more of its total expenditure. This threshold is being reduced from 40% to 30% as announced today.

To smooth the effect of exceptional spending, provisions are also being brought into enable an intensive SME which has made a valid claim under the intensive regime in one year to also claim under the intensive regime in year two. Anti-avoidance legislation will also be brought in to prevent companies from using shortened accounting periods to manipulate their intensity.

For intensive SME claims, legislation will also be brought in to remove the rule that treats any expenditure met directly or indirectly as subsidised to simplify the process.

With yet more changes ahead after a string of changes to the schemes over the last couple of years, we are on hand to provide advice.

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