SMEs benefit from Research & Development tax credits scheme changes

Research & Development tax credits scheme

SMEs benefit from Research & Development tax credits scheme changes

After months of pressure, Chancellor Jeremy Hunt announced a partial reversal to the SME Research & Development (R&D) tax credit cuts in the recent Spring Budget.

Startups had warned that the cuts announced in the last Autumn Statement would hinder growth for early-stage and research-intensive tech companies.

The R&D tax credits and relief scheme was already attracting criticism because of suspected fraud and abuse of the initiative.

The autumn reforms to the R&D scheme became effective in April 2023.

The key points are:

  • the reduction of R&D costs from 230% to 186% of qualifying expenditure.
  • The available cash credit rate for R&D tax losses offset against a cash rebate is reduced to 10% from 14.5%.

The Research and Development Expenditure Credit (RDEC) rate has increased from 13% to 20%.

Top up R&D 

The previously announced reduction will remain in place, but loss-making “R&D-intensive” startups will receive a top-up. Those that spend 40% or more of their total outgoings on R&D can claim a tax credit of 27%, or £27 for every £100 spent.

The inclusion of some overseas expenditure in R&D tax relief claims is deferred for a year until 1 April 2024 to allow the Government to consider the interaction with a potential merged R&D relief scheme.

We have two new categories of qualifying R&D expenditure for data licences and cloud computing services. 

From 1 August 2023, all R&D claims must be filed using the new digital forms, regardless of the accounting period concerned.

How to claim R&D relief

You can claim the relief up to two years after the accounting period it relates to by treating it as a deduction from the company’s profits for the accounting period. 

You can make your claim on your company tax return or via an amendment. 

You must send:

  • A full Company Tax Return form (CT600)
  • A completed tax computation
  • Add the form CT600L, if claiming a payable tax credit or Research and Development Expenditure Credit.

Need help with claiming Research & Development tax credits scheme? Contact us today.