Next year will see a number of alterations to the UK research and development (R&D) tax credit regime, including a cut to the deduction and credit rates for the SME scheme.
This popular tax relief will experience a cut to the enhanced deduction rate to 86 per cent from the current 130 per cent, while the payable tax credit rate for loss-making businesses will be cut to 10 per cent from 14.5 per cent.
While this is bad news for the SME scheme, the separate R&D expenditure credit – also known as RDEC – that is intended for larger businesses will increase significantly, from 13 per cent to 20 per cent.
The changes to the SME scheme mean that if you are a loss-making company, you will now only receive £18.60 for every £100 spent from April next year, compared to £33.35 per £100.
These changes are intended to reduce abuse in the R&D tax system, particularly claims for SMEs, which have been the spotlight of several investigations by HM Revenue & Customs (HMRC).
They are scheduled to take effect from 6 April 2023, so there is still time to plan, and it may make sense to bring forward R&D expenditure, where possible, to benefit from more favourable deductions and credits.
These changes will be introduced alongside a number of other reforms to R&D in the new tax year and it is important to seek advice if you are unsure how your plans might be affected.