Changes to R&D Tax Credits In The 2023 Autumn Budget
If you run an innovative business, you'll likely have come across the UK government's Research and Development (R&D) Tax Credits scheme. This programme has been providing valuable support to companies undertaking important R&D work for over 20 years now.
However, we’ve noticed a lack of solid, up-to-date information out there - with all the alterations announced in the latest Budget, there seems to be a lack of clear, current guidance on how R&D tax credits now work. The scheme has gone through some big changes recently that many companies may have missed
In his latest Autumn Budget, Chancellor Jeremy Hunt announced the merging of separate SME and RDEC schemes into one system. We want to outline what this means for companies like yours.
At Clifton Private Finance, we work with businesses across the UK to help them access funding. We know how important schemes like R&D tax credits are, but also how confusing the changes can be. That's why our team of finance experts are on hand to guide you through the new rules and give you a brief run-down on the significant changes.
In this blog:
The Latest Changes to R&D Tax Credits
The Merging of SME Relief and the RDEC Scheme
Up until April 2024, R&D tax credits operated through two distinct schemes - one for SMEs and one for larger companies, known as RDEC. The thinking was that smaller and bigger firms had different needs.
However, to try to simplify things, the Chancellor has now merged these schemes into one unified programme.
While well-intentioned, this has inevitably made determining the relief you can claim a bit more complex. Here at Clifton Private Finance, we can assess your specific circumstances and provide tailored advice on maximising your available tax credit.
Understanding the New R&D Tax Credit Rates
The exact rates of relief you can access will depend on whether your business is currently loss-making, profit-making, or breaking even.
For loss-making companies, the effective relief rate is now:
- 16.2% for non-'R&D intensive' firms
- 26.97% for 'R&D intensive' firms (spending 30%+ on R&D)
Previously under the SME scheme these rates were 33.35% and 26.97% respectively.
If your business is profitable, you can offset 15% of costs against corporation tax, increased from 13% before the merger.
The £20,000 PAYE and NIC Cap
An important change introduced in recent years is the £20,000 + 300% of PAYE/NIC cap on claims. This has now been extended to companies of all sizes.
This includes PAYE and NIC paid for employees, directors, connected workers, and subcontractors - regardless of their involvement in R&D activities.
For businesses with less than around £120,000 of qualifying R&D spend, the £20,000 baseline figure means you may not need to worry about the cap at all. But for larger claims, we'll ensure you understand any potential limitations so your business receives its maximum tax credit entitlement.
The Importance of Compliance with R&D Tax Credit Claims
We know that compliance is now a major focus for HMRC when it comes to R&D tax credits. After dealing with many non-compliant claims over the years, they've really cracked down.
Recent changes in the last couple of Budgets have specifically looked to close loopholes and ensure every tax relief claim is legitimate. HMRC inspectors are now scrutinising even small claims of a few thousand pounds to check they meet the requirements.
In the past, smaller companies may have got away with innocent mistakes, on the basis it wasn't worth HMRC's time to investigate. But that is no longer the case. Full compliance is essential.
That's why we advise getting professional support from experts like us when applying for R&D tax credits. We can ensure your claim is properly prepared and evidenced to avoid problems. Our knowledge of the scheme's intricacies helps guide businesses through the process smoothly.
Get Expert Support Accessing R&D Tax Credits
While the scheme has been overhauled, key aspects remain unchanged –
- The definition of qualifying R&D
- The 2 year window to make backdated claims
- The need for thorough records
Businesses considering an R&D tax credit claim would benefit from expert support to ensure full compliance and maximise the relief available. Our knowledgeable team can offer guidance on all of these areas to remove the stress from the application process.
If you need support navigating the new R&D tax credit rules, get in touch with the experts at Clifton Private Finance today. We're here to help.
For more information, you can read our in-depth guide for everything companies need to know about the new system for R&D tax credits in 2024 and beyond.
contact us today at 0203 880 8890 or book a free consultation below.