R&D intensive SMEs to benefit from new R&D support rates

In the recent March Budget, the Chancellor announced a partial retreat from his autumn statement. Jeremy Hunt is introducing new research and development (R&D) support rates to help drive investment in innovation for the UK’s R&D-intensive SMEs.

Below is an overview of the updates to the R&D tax credit scheme.

Enhanced R&D support rates

• Starting 1 April 2023, the government is rolling out a higher R&D tax relief rate to bolster loss-making, R&D-intensive SMEs that commit at least 40% of their total expenditure to qualifying research and development initiatives.
• The result is an effective benefit of 27% for qualifying SMEs, compared to 19% for others after 1 April this year.

For example, if a company with a period-end of 30 May 2023 has a qualifying R&D expenditure that meets the intensity threshold, they’ll enjoy the higher payable credit rate for expenses from 1 April 2023 to 30 May 2023.

Eligible companies can claim this extra support as part of their SME credit for expenses on or after 1 April 2023. However, due to retrospective legislation, claims for the higher rate can’t be filed until 1 August 2023. Companies must either wait or file at the lower rate and later amend their return for additional relief.

Restrictions on overseas expenditure in R&D tax reliefs

• The introduction of restrictions on overseas R&D expenditure has been postponed from 1 April 2023 to 1 April 2024, allowing time for government assessment of a potential merged relief.
• The government has listened to feedback from recent R&D consultation and is considering mitigating measures for the new unified R&D incentive scheme – potentially to be announced in April 2024.

Pre notification affecting start-ups and new R&D claimants

This remains from the 2022 autumn statement and will impact new claimants and those who have not submitted a claim recently.

• Pre-notification of a R&D claim will affect some claimants from 1 April 2023: companies with no prior R&D claim or those without a claim in the three accounting periods preceding the claim period in question must submit a claim notification.
• Claim notifications must be submitted within six months of the last day of the claim period for eligibility.

The table below summarises the rates of R&D tax relief available on SME and RDEC regimes:

(1) The main rate of corporation tax will be 25% for companies with profits of £250,000 or more

(2) Increased rate of relief for loss-making R&D intensive SMEs

For more in-depth information, read our Budget 2023 summary. You can also contact our R&D experts if you need more information or guidance.