What did the Chancellor announce in the Autumn Statement today?
The R&D tax relief schemes were specifically mentioned by The Chancellor of Exchequer, Jeremy Hunt today. In response to reports of abuse and fraud in the SME scheme, he has announced a cut in the enhancement rate to 86% (from 130%) and the tax credit rate to 10% (from 14.5%). For the RDEC scheme, the rate will increase from 13% to 20%.
He commented “Despite raising revenue, the OBR have confirmed that these measures have no detrimental impact on the level of R&D investment in the economy. Ahead of the next Budget, we will work with industry to understand what further support R&D intensive SMEs may require.”
Beyond the headlines, the conversation is ongoing and this could be an opportunity to redeploy the capital to generate the greatest return for the UK taxpayer.
The good news
- Government reaffirms its commitment to R&D and acknowledges a wider need to change how it funds innovation.
- R&D tax will be simplified in the longer term and likely to move on from SME and have a single scheme similar to RDEC.
- This would provide the foundations to better target the relief to certain sectors and projects and avoid the scheme being abused.
- It’s good to see the RDEC rate up to 20%.
The bad news
- The SME scheme has effectively had a cut of a third through the reduction to the enhanced rate moving from 130% to 86% and the tax credit reduction to 10% (from 14.5%).
- This is a blanket cut and businesses who legitimately claim and rely on it will find this a brutal attack.
- Potentially too much heading toward larger and London-centered businesses.
- The real risk is that this approach damages the levelling up agenda.
What it means if you’re currently claiming
These changes are scheduled to take effect from April 2023, so there is time to plan. It will impact different businesses in different ways. Under the SME scheme, if you are currently claiming a tax credit the reduction could be up to 54%.
SME loss benefit
However, if you are profitable the reduction should be circa 17%. Your R&D tax advisor should be able to help, we will be reaching out to clients with specific advice.
SME profit benefit
As mentioned, the RDEC rate will increase from 13% to 20%. The post April example below is based on the CT rate at 25%.
What it means if you're an accountant
Over the next four years, HMRC will be committing a new spend of £200m to tackle fraud. It's more important than ever to really assess any clients who are making an R&D claim. Do not be surprised if HMRC is even more motivated to address the abuse through Enquiry.
What it means if you're an investor
Does this create a funding gap for your portfolio?
More to come
Watch this space for ongoing updates.