R&D tax relief rates – Have your plans adapted to the recent changes?

The UK Government has long encouraged businesses to invest in R&D projects, believing it to be at the forefront of economic growth.  

R&D tax reliefs are, therefore, lucrative and aimed at both Small and Medium Sized Enterprises (SMEs) and larger organisations.  

However, companies involved in R&D projects should be aware of the Government’s recent reforms to the R&D tax reliefs, which came into force in April 2023. 

R&D tax relief for SMEs 

Up until 31 March 2023, the Government allowed profitable Small and Medium Enterprises (SMEs) working on R&D projects to deduct an extra 130 per cent of their qualifying costs from their yearly profit for Corporation Tax purposes.  

This was on top of the regular 100 per cent deduction – allowing up to 230 per cent of qualifying expenditure to be offset against their costs.  

However, as of 1 April 2023, this uplift was reduced to 86 per cent. This is on top of their normal 100 per cent deduction, so a total 186 per cent deduction can now be made.  

SMEs are also able to claim a payable tax credit if the company has claimed relief and made a loss, the payable credit was worth up to 14.5 per cent of the surrenderable loss but is now 10 per cent. 

R&D-intensive businesses (those whose R&D expenditure equates to 40 per cent or more of their total expenditure) still qualify for an enhanced rate of 14.5 per cent. 

The Government defines an SME as a business with less than 500 staff and a turnover of under 100 million euros.  

However, the R&D projects must be in the fields of science and technology.  

R&D Expenditure Credit (RDEC) 

RDEC is a similar tax relief but is geared towards larger corporations, however, SMEs can claim RDEC if they cannot claim R&D tax relief for small and medium-sized enterprises.  

As of 1 April 2023, companies can be offered credit worth 20 per cent of their qualifying R&D expenditure which is a rise from the 13 per cent rate offered previously.  

The RDEC is taxable, but it can be used to offset the corporation tax bill, or claimed as a cash payment, providing significant financial relief for companies undertaking R&D.  

The other R&D reforms 

In addition to the rate changes, the Government has introduced the following: 

• Advanced Assurance notification forms must be submitted digitally by SMEs to HM Revenue & Customs (HMRC) – mandatory from 1 August 2023 
• R&D expenditure categories extended to include costs of datasets and cloud computing 

• R&D in pure mathematics now qualifies for relief 

For more information about R&D tax relief and how you can apply, please contact us.