Chancellor Jeremy Hunt has announced modifications to the Small and Medium Enterprises (SME) Research & Development (R&D) tax credit program in the recent Spring Budget, partially reversing the earlier cuts.
The initial cuts were announced in the Autumn Statement last November and raised concerns among startups, who argued that they could stifle growth for early-stage, research-focused tech firms.
The R&D tax credits and relief scheme faced scrutiny due to potential fraud and abuse. The autumn reforms, effective from April 2023, included the following key changes:
The Research and Development Expenditure Credit (RDEC) rate was also increased from 13 per cent to 20 per cent for larger businesses.
Loss-making startups with a significant R&D focus will still see the reduction but will receive a supplemental benefit.
Companies spending 40 per cent or more of their total expenses on R&D can claim a 27 per cent tax credit or £27 for every £100 spent.
The Government has also deferred the inclusion of some foreign expenditure in R&D tax relief claims until 1 April 2024, allowing time for potential integration with a merged R&D relief scheme.
Two new categories of qualifying R&D expenditure have also been introduced for data licenses and cloud computing services from 1 April this year.
Starting from 1 August 2023, all R&D claims must be submitted using the new digital forms, regardless of the accounting period.
To claim R&D relief, companies can file up to two years after the relevant accounting period, treating the relief as a deduction from the company’s profits for that period.
Claims should be made in the company tax return or an amendment to the return, including a full Company Tax Return form (CT600), a completed tax computation, and the form CT600L if claiming a payable tax credit or RDEC.