The overhaul of R&D relief will go ahead from April 2024 merging the two systems and reducing the intensity threshold from 40% to 30% for SMEs with a soft landing
Will Drysdale, Reporter, Accountancy Daily
This will allow an extra 5,000 SMEs to qualify for R&D tax relief, the Chancellor said.
Rates for companies at a loss will be reduced from 25% to 19% and the thresholds will be reduced from 40% to 30% from 1 April 2024. HMRC calculates R&D intensity as the proportion of an SME’s qualifying R&D expenditure compared to its total spending.
Along with these changes a one-year grace period is being introduced for companies that dip below the 30% that guarantees companies relief for the next year.
The Autumn Statement Green Book confirmed that the profitable businesses credit rate will be reduced to 15% while loss makers will be penalised having to pay a 16.2% rate.
By the 2028-2029 period these changes are predicted to cost £280m in tax relief per year.
The R&D Expenditure Credit and the SME scheme will be merged from 2024 and will stop complex transition between the two schemes as currently happens.
R&D claimants will also no longer be able to nominate a third-party payee for the relief payment. Only the claimant will receive the tax credits and no new assignments of the credit will be possible from 22 November for existing claims.
Ele Theochari, R&D tax partner at Blick Rothenberg said: ‘The devil will be in the detail, however it is concerning that there is still talk of a separate relief for SME intensive businesses that will only potentially affect 5,000 businesses.
‘The government need to take care that the arbitrary 40% threshold that has been set is not manipulated in order to garner a greater relief.
‘There has still not been a firm decision on the timeframe of this merged scheme, and yet more changes to the percentages of this new relief seem like window-dressing.
‘There has been significant discussion about various “reliefs”, “support”, and “funding”. How will businesses know how to access the relief, and how will this be administered by HMRC?’
The decision to push ahead with the reforms from April when there is limited guidance and the rules have not been finalised has been criticised.
Rachel Moore, innovation incentives partner, PwC said: ‘Confirmation that the SME and large company R&D schemes are to be merged will be met with mixed views by business. On one hand it is a welcome simplification, but there is still much uncertainty on who will be entitled to claim R&D under the new rules.
‘This will undoubtedly result in some significant winners and losers, with the subcontractors hiring skilled R&D staff expected to lose out based on current draft rules.
‘Given many will already have entered into contracts that are impacted by the new rules, some businesses will be disappointed the government has not listened to calls for a delay in the rules to give time to plan and prepare for what will be a big change.
‘The expansion of the R&D relief for R&D intensive business will be welcomed by the life sciences and high tech sectors. The measure lowers the threshold for which businesses can qualify for the relief from 40% to 30% intensity.’
The government announced £750m in R&D investment this year, saying going further will ‘ensure the UK remains at the cutting edge of science, innovation and technological investment’.