Innovative and hi-tech businesses are being urged to seek advice after tax relief for research and development (R&D) was slashed in the Autumn Budget.
Chancellor Jeremy Hunt announced the relief would be cut from 14.5 per cent to 10 per cent from next April and experts at accountants and business advisors Whitley Stimpson say business owners should act quickly to see how they will be affected and assess what can be done to mitigate the impact.
Whitley Stimpson Director Jonathan Walton said:
“Oxfordshire has always been a hotbed of innovation and many small and start-up businesses rely on rate relief to help keep them afloat while they carry out research and development. These latest measures will hit some businesses that are not generating an income particularly hard and is a backward step for innovation.”
Some businesses will benefit from the Chancellor’s decision to increase the rate of the R&D Expenditure Credit from 13 per cent to 20 per cent but this has been criticised because it does not give firms a cash rebate.
What R&D Rates are changing after the Autumn Budget?
- For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate for large companies claiming R&D relief will increase from 13% to 20%
- The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and
- The SME credit rate will decrease from 14.5% to 10%.
The effects are:
- An SME with large profits can expect the rate of its relief to decrease from 25%-22% while an SME with small profits will receive a benefit rate of 16% instead of 25%
- A loss-making SME receiving a cash-credit can expect its rate of relief to decrease from 33% to 19%
- An SME claiming a cash-credit in a break-even profit position can expect to see its benefit rate decrease from 19% to 9% and
- Benefit rates for RDEC-claimant companies will increase by between 4%-5% depending on their profits and tax position
- The SME scheme is amended to reduce the uplift from 130% to 86%.
The move follows a previous Government decision to increase the rate of corporation tax from 19 per cent to 25 per cent from April 2023.
The Government is also cracking down on fraudulent tax relief claims by insisting they are endorsed by a senior officer of the company with HMRC needing to be notified of any R&D activity on the day it takes place.
Details of agents acting for companies will also have to be provided to HMRC.
Jonathan added:
“Business owners will understandably be worried by these measures. We need to speak to them to assess their options and plan for the future.”
For further information visit www.whitleystimpson.co.uk