Autumn statement 2022: Key changes to the R&D Scheme

The Chancellor’s Autumn statement contained several changes to the existing R&D tax regime. The key changes which are to come into effect for expenditure incurred “on or after 1 April 2023” are as follows:

·      Changes to the RDEC Scheme

RDEC rate increased from 13% to 20%

·      Changes to the SME Scheme

Additional taxable deduction reduced from 130% to 86%

SME tax credit decreased from 14.5% to 10%

These reforms are part of a series of ongoing measures which also appear to indicate the first of a two step towards to what the Chancellor called “a simplified single RDEC scheme for all”.

We should remember that these reforms come into play at the same time that he rate of Corporation Tax is increasing to 25% from 1 April 2023, affecting companies with profits of £250,000 and over. Companies with profits up to £50,000 will continue to pay Corporation Tax at 19% with, profits between these to thresholds subject to tapered tax (with marginal relief). The summary below provides a snap shot of the changes to the R&D tax benefit to a company with profits over £250,000 at the new rate of CT:

• SME Profitable - the current rate of R&D benefit will be reduced by 13% to 21.5%

• SME Loss making - the current rate of R&D benefit will be reduced by 44.2% to 18.60%

• RDEC - the current rate of R&D benefit will be increased by 42.5% to 15%

NB. Where an SME makes a profit of under £50,000, the tax benefit received will be 16.34% and for profits between £50,000 and £250,000 resulting in a tapered tax benefit between 16.34% and 21.5%.

18 November 2022