Amongst all the other announcements from the Chancellor in last week’s Autumn Budget Statement, there was significant news for the R&D Tax Relief scheme. Jeremy Hunt confirmed that the SME and large company R&D schemes are to be merged for accounting periods beginning on or after 1 April 2024.
Whilst this has come at a time of unprecedented change to the R&D regimes, the delay to the implementation is welcome news for all companies as it was announced previously that the new regime would apply to expenditure from 1 April 2024. Therefore, companies will now have considerably more time to prepare for these changes and there will be no split-year treatment to complicate matters.
However, the merger will undoubtedly result in a further reduction to the rate of benefit for SMEs who will no doubt already be feeling the impact of the reductions, which took effect from 1 April 2023. If, as is expected, the headline rate of relief under the new merged scheme remains at 20%, then the resulting net tax benefit for claimants will be either 15% or 16.2% (for loss-making companies).
There was some good news for R&D-intensive SMEs, with the intensity qualifying threshold being reduced from 40% to 30%. Around 5,000 additional businesses will now qualify for this category and will receive a net tax benefit of 27%, which is considerably higher than the benefits under the new merged scheme.
The Government’s goal was simplification – by merging the regimes into one. However, we will still be left with two (R&D-intensive and the rest) and, taking into account all the changes announced (and still to be confirmed), many companies will still be unable to plan with certainty given the ever-evolving landscape.
These announcements conclude the Government’s review of R&D Tax Reliefs (launched back in the 2021 Spring Budget). Concerns remain around high levels of non-compliance in claims, and HMRC will be publishing a compliance action plan in due course.
Legislation and further guidance have been promised before the end of the year and we will keep you updated on these as soon as they are published. If you have any questions or concerns about the changes and their impact please get in touch.