The UK Government is making significant changes to the R&D tax relief regime in order to increase its competitiveness, simplify the claim process and combat abuse of it.
As businesses contend with economic challenges these changes present an excellent opportunity for companies to receive financial support through a valuable cash injection for R&D activities if they are not already being accessed.
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R&D tax relief schemes
The R&D tax relief scheme is designed to incentivise innovation within the UK by providing valuable tax savings or cash repayments to help fund R&D activities. The benefit is only available to limited companies that are undertaking qualifying R&D projects.
Since the release of R&D claim statistics for the 2020-2021 tax year, which showed a reduction in total support claimed for the first time ever, the Government has been consulting on a single R&D tax relief scheme. The key objective is to simplify the process for claimants. Currently, the UK’s regime consists of two R&D tax relief schemes:
- The small or medium-sized enterprise (SME) scheme and
- The large company scheme (also known as RDEC).
The qualifying criteria for the SME scheme are:
- An organisation with fewer than 500 full-time employees ; and
- An annual turnover not exceeding €100m or balance sheet assets (gross) not exceeding €86m.
Both schemes operate differently and from 1 April 2023, the benefits of both have been aligned.
As a high-level example, from 1 April 2023, if a company has qualifying R&D spend of £100,000, it could save tax of £21,500 under the SME regime or receive a gross R&D expenditure credit of £20,000 under the RDEC regime.
The recent Spring Budget also saw the announcement of a new R&D tax relief scheme to increase the benefit available to loss making R&D intensive SMEs. This measure aims to ensure that innovative loss-making SMEs are not penalised by the levelling up of the benefits between the two schemes and continues to encourage businesses to undertake R&D in the UK.
Making R&D claims can be complex and overwhelming, especially during a period of significant change for the regime. With the increased compliance obligations, changes in qualifying expenditure and benefits available, planning around R&D tax relief is crucial to achieve the best outcome for a business. At Azets, the team of trusted business advisors can support R&D claimants with the recent and upcoming changes to ensure the company is well prepared for making a robust and reliable R&D claim. By claiming R&D tax relief, businesses can benefit from financial support and be incentivised to undertake more R&D activities in the UK.
If you would like expert advice and support for your R&D activities contact Jenna McDonald, Corporate Tax Manager, jenna.mcdonald@azets.co.uk or call 01224 581 288 to discuss how we can help you with your R&D tax relief claim.
