As expected, the Chancellor implemented a number of changes to the landscape of R&D tax relief today. The reduction in the SME enhancement was legislated for expenditure incurred from 1 April 2023 to tackle error and fraud within the scheme and loss-making R&D-intensive companies would have been hit the hardest by this change. To soften the blow new measures were announced today to ensure the surrender rate remains unchanged.

Changes announced today

• R&D intensive loss-making companies will be able to claim £27 from HMRC for every £100 of R&D spent, instead of £18.60 for non-R&D intensive loss-making companies. A company would be considered R&D intensive if its qualifying R&D expenditure is worth 40% or more of its total expenditure.
• The intention was for most of a company’s overseas subcontracted expenditure to be removed as a qualifying cost from 1 April 2023. This will now come into effect from 1 April 2024

As previously announced

• The SME enhancement was reduced from 130% to 86% for expenditure incurred on or after 1 April 2023.
• The SME surrender rate was reduced from 14.5% to 10% for expenditure incurred on or after 1 April 2023.
• The RDEC rate was increased from 13% to 20% for expenditure incurred on or after 1 April 2023.
• Data licences, cloud computing services and pure mathematics are qualifying R&D costs for accounting periods starting on or after 1 April 2023.

Following the Government’s consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes, which closed on 13 March 2023, the Government is now reviewing the responses with a view to announcing any proposed changes in the summer.

As a trusted R&D advisor, we will keep you informed of the latest changes and how these may impact your entitlement to claiming R&D tax relief.