Spring Budget 2023: R&D tax credits annoucements

Announcement for additional support for R&D intensive businesses

With a raft of legislative changes already coming into force on 1 April 2023, further changes were expected during the Spring Budget as a response to the Chancellor indicating he would look at a more robust R&D tax credit relief for smaller research-intensive companies. An announcement was indeed made, introducing an enhanced credit which means that if a qualifying small or medium-sized business spends 40% or more of their total expenditure on R&D, they will be able to claim a credit worth £27 for every £100 they spend.

Delay on implementing restriction on overseas R&D

It has also been advised that the previously announced restriction on overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a proposed merged R&D relief.

Matthew Jones, managing director, LimestoneGrey, chartered R&D tax credit consultancy

Matthew Jones

Managing Director

Matthew Jones, Managing Director at LimestoneGrey, commented:

Yesterday’s announcement was positive news for R&D intensive companies following the recent rate reduction. However, the fact that this enhanced relief is only available to loss making companies seems unfair to those companies who do make a profit. We will await further guidance as to how this new initiative will work in practice.

It is welcome news that the planned change to overseas R&D costs has been delayed pending further consideration as to how it would interact with the proposed single R&D relief. Many companies take advantage of overseas labour, whether that is through subcontracted activities or payments to EPWs. This could be for several reasons, examples of which could be lower costs, access to specific expertise or a continuation of a long-standing relationship for on-going projects.

The continuing amendments to R&D tax credit relief, whether that is further new changes or retractions of previously announced changes, is creating a complex landscape for companies, especially as these changes could be superseded by a single R&D scheme in as little as 12 months. If you are concerned as to how these changes will impact your future R&D tax credit claims, speak to your advisor for clarification.