Kirby & Haslam R&D Tax Changes April 2023

Research & Development Tax Credit Changes from April 2023 

The UK’s Research & Development (R&D) Tax Credit Scheme is a government incentive, introduced in 2000, aimed to encourage businesses to invest in innovation projects. Providing tax relief for companies who undertake R&D, the scheme helps offset costs associated with research investment.  

The government continuously aim to improve the scheme, for example, in 2018 changes were made to the application process making it easier for small and medium-sized enterprises (SMEs) to claim for R&D Tax Credits. Such changes included reducing administration and providing more guidance on what qualifies as R&D. Another example of how the scheme continuously improves is 2020, in response to the Covid-19 pandemic, rates increased from 12% to 15% of eligible R&D expenditure, providing additional support for companies during challenging times.  

Further changes are to be introduced to the scheme as of 1st April 2023. Effecting SMEs and larger organisations, the changes to R&D Tax Credits reflect a shift in strategy from HRMC in UK innovation investment. In order to improve compliance and the smooth operation of the scheme, the rates are to be rebalanced and companies claiming under the R&D SME scheme will receive a lower rate of tax relief, whilst those claiming Research & Development Expenditure Credit (RDEC) will secure more generous rates.  

How Does this Effect SMEs? 

In real terms this means that, as of 1st April 2023, the additional deduction for SMEs will decrease from 130% to 86%, with the credit rate reducing from 14.5% to 10%. For example, if your R&D spend was £100, as of April, the Tax Credits available would decrease from £24.70 to £21.50. 

How Does this Effect my RDEC Claim? 

In a change of direction form how the scheme will reduce tax relief for SMEs, those claiming RDEC can expect to see an increase of Expenditure Credit, from 13% to 20%. So, once more, if your RDEC spend was £100, your Tax Credit would increase from £10.53, to £15.00. 

What Next? 

Although the reductions in R&D Tax Credits may make SMEs think twice about if a claim would be worthwhile, we would like to assure you it absolutely is! HMRC is still dedicated to improving Research & Development in SMEs, and even the reduced rate can provide vital support for your innovation projects. It is also worth bearing in mind that these changes will only affect monies spent for accounting periods on or after 1st April 2023, this means you can still take advantage of the more generous rates until then.  

For more information on how R&D Tax Credits, or RDEC, could benefit your business, contact us today so we can assess your innovation eligibility.  

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