The Chancellor announced a new merged R&D tax relief scheme combining the SME scheme with the Large Company scheme, which will take effect for accounting periods beginning on or after 1 April 2024.
This latest announcement brings with it a range of new modifications and changes, introducing yet more complexity into the R&D tax relief schemes.
This new combined scheme has different impacts on SMEs and Large Companies. (Large companies, for the purposes of R&D tax relief, briefly are those that have more than 500 employees).
For SMEs, the announcements made yesterday will have far-reaching implications.
The merged scheme even further reduces the amount that SMEs can receive from claiming R&D tax relief, down from the current 18.6% to between 15% and 16.2%, depending on their tax paying position.
SMEs will be further impacted as they will no longer be able to claim for R&D expenditure on R&D work that has been subcontracted to them.
It isn't all bad news for SMEs, however.
The threshold to be considered an R&D intensive SME has been lowered from 40% to 30% of costs. This means approximately 5,000 more companies will qualify for the more generous relief. These companies will receive 27% back from the R&D tax relief scheme, significantly higher than the 15% to 16.2% that other non-R&D intensive SMEs will receive.
In addition, a one-year grace period for R&D intensive SMEs suggested by MMP in our response to the draft legislation over the summer will now form part of this relief.
This will allow companies who temporarily dip below the threshold to continue claiming under the R&D intensive scheme for one year, providing certainty to companies, allowing them to make R&D investment decisions and budget accordingly.
Another positive note for SMEs, is they will now be able to claim for projects that have been subsidised. This removes one of the complexities that SMEs had faced when claiming R&D tax relief in the past.
Large companies are set to benefit from the new merged schemes.
Large companies will now be able to claim for subcontracted expenditure.
In the past, this was limited to claiming subcontracted expenditure only to qualifying bodies such as universities or research organisations. For many large companies, this should result in an increase in the amount of expenditure that can be included in their R&D tax relief claim.
In addition, loss-making large companies, will see their benefit rise from 15% to 16.2%.
Further details are still being released about the merged scheme and we will continue to keep you updated on these changes as they are announced, and their likely impact.
With the wide-ranging changes made to the R&D tax relief scheme over the last few years, and the newly announced changes in this Autumn Statement 2023, it is even more important to work with an expert advisor who understands the changes and their implications for your specific circumstances, and will help you to claim correctly and ensure that you receive the maximum value you are entitled to.