Amongst his jokes, he announced some important changes around Research and Development (R&D) and Video Games Tax Relief which will have a big impact on innovative businesses.
He also outlined a whole host of initiatives for targeted R&D support and investment. We've outlined the biggest changes below.
R&D tax has turned into a hot topic, with new announcements featuring in each of the last few budgets. This budget was no exception.
The government announced the following main changes to R&D tax:
R&D intensive companies
For loss-making SMEs who spend 40% or more of their total expenditure on qualifying R&D will be able to claim a more generous 27% net benefit from 1 April 2023.
This reverses some of the damage done in the Autumn Statement 2022 where the headline rate of R&D tax credit relief was slashed from 33.35% to 18.6%. However, there is no change for profitable SMEs investing in R&D who will continue to receive a lower rate of relief. This is a disappointment.
The previously announced increase in the Research and Development Expenditure Credit (RDEC) rate (the R&D scheme for large companies) is still in force so large companies investing in R&D will see their R&D tax credit increase by almost 50%, to a net benefit of 15%.
What is an SME? The definition used by HMRC for the R&D tax scheme is a company that employs fewer than 500 employees and either has turnover below €100m (approximately £87m) or a balance sheet total below €86m (approximately £75m). There are other rules regarding control and ownership as well as other complexities.
The government previously announced a restriction in the overseas expenditure that can be included in the R&D tax scheme. The implementation of this has now been delayed to 1 April 2024 from the previously announced 1 April 2023.
For claims made from 1 August 2023, additional information will need to be submitted with the claim. For MMP clients, nothing will change because we already gather and provide this information to HMRC. But if you're preparing your own claim or using a different advisor then watch out for this new requirement.
A range of information will need to be provided, including project descriptions, qualifying expenditure broken down by each project and cost bucket, number of EPWs working on each project, etc. We'd recommend bringing R&D claim submissions forward to before 1 August to avoid the initial teething issues with HMRC's new submission form.
The government confirmed that they are continuing to look at combining the large company and SME schemes (RDEC and R&D tax credit scheme for those in the know). They will be considering the views shared in the recent consultation and expect to release draft legislation with the publication of the draft Finance Bill in the summer.
- MMP director, Alexis Marz, had this to say about the budget:
"I welcome the changes to the R&D tax scheme, but the underlying problems with fraud and ineligible claims have still not been addressed. It is unfortunate that small innovative companies making eligible claims will pay the price for this. I encourage the government to be more forward thinking and look to reconsider their approach. There are better mechanisms to deter and prevent fraud then simply slashing the support that small, innovative and profitable companies receive."
A Welcome Surprise to the Video Games Tax Relief Scheme
Although, not featuring in the Chancellor's speech today, there is a big change afoot for the Video Game Tax Relief scheme. Along with the film and TV tax reliefs scheme, they will all change to an expenditure credit scheme from 1 April 2024. The new Video Games Expenditure Credit will have an increased rate, so you'll receive 34p for every £1 spent on qualifying video game expenditure.
One aspect of the change, is that from 1 April 2025 the scheme will only allow expenditure on goods or services used or consumed in the UK. For games in development on that date, they may continue to claim EEA expenditure until 1 April 2027.
The exact design of the new scheme is yet to be announced but we will be publishing an article with more details once that has happened.
Headline Corporation Tax Changes
There were no further changes to the rate of corporation tax already announced, so the increased corporation tax rate of 25% will come into effect from 1 April 2023.
To help soften the blow, the government has made changes to the capital allowances regime. It will allow 100% full expensing for main rate assets. For most capital expenditure you'll be able to write off the full cost in the year of purchase, this does not apply for cars, buildings, long life assets and other assets.
So, should you buy your capital item now and benefit from the 125% superdeduction scheme which will be coming to an end in the next few weeks, or do you wait until 1 April 2023 to buy the asset?
If you are a profitable company expected to pay the 25% rate of tax then it is actually marginally better to wait and make the capital expenditure after 1 April 2023. This is because currently at the cooperation tax rate of 19%, profitable companies would save 23.75% whereas they could save 25% when the new tax rate comes into force.
R&D initiatives and investments
There were a whole host of announcements related to investments in R&D initiatives. These are very targeted, so we won't discuss them here. But if you are interested in the following areas:
- carbon capture, usage and storage
- nuclear energy
- a new exascale supercomputer and AI Research Resource
- AI challenge prize of £1m per year
- £100m Innovation Accelerators programme
- AI Foundation Models Taskforce
- a new £2.5b quantum research and innovation programme
then further detail can be found in the full Budget Statement with additional information released in the weeks and months ahead.
And a bonus for all those saving for retirement, the annual allowance will rise from £40k to £60k per year and the lifetime allowance cap will be removed.