March 15, 2023

Spring Budget 2023: Impact on R&D Tax Relief (Key Points)

The Spring Budget of 2023 has brought some important changes to R&D Tax Relief, which could have a significant impact on businesses and innovators across the UK.

Here are the key points you need to know.

At the Spring Budget 2023, the Chancellor announced a new R&D scheme for 20,000 SMEs in the UK, worth around £500 million per year.

  • The scheme is targeted specifically at loss making R&D intensive SMEs.
  • Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non-R&D intensive loss makers.
  • A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure, around 1,000 claiming companies will come from the pharmaceutical and life sciences industry. Around 4,000 digital SMEs will be from the computer programming, consultancy, and related activities sector. Around 3,000 other manufacturing firms, and another 3,000 professional, scientific, and technical activities firms will also qualify for the enhanced support.
  • The permanent increase from 13% to 20% for the R&D Expenditure Credit rate announced at Autumn Statement 2022 means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies.
  • Combining the government’s spending on R&D with the support from tax reliefs, total UK R&D support as a proportion of GDP is forecast to increase to approximately 1.0% in 2024/25.
  • Additional tax relief for R&D intensive SMEs – From 1 April 2023, a higher rate of relief for loss-making R&D intensive SMEs will be introduced.
  • SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure will be able to claim a higher payable credit rate of 14.5% for qualifying R&D expenditure.
  • The government also committed to considering the case for further support for R&D intensive SMEs. From 1 April 2023, the government will introduce an increased rate of relief for loss-making R&D intensive Small and Medium size Enterprises (SMEs). Eligible companies will receive £27 from HMRC for every £100 of R&D investment. The government remains committed to supporting R&D, and recognises the important
  • The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. 
  • The government is currently considering the responses to its consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes. No decision has been made yet, but the government intends to keep open the option of implementing a merged scheme from April 2024.
  • The government will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill.
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