R&D Update 2023/24

In late 2022 Jeremy Hunt announced that government spending on R&D would rise. On the surface, the R&D changes looked like good news. But is this really the case?

What R&D changes have been made

The official Autumn Statement Policy Paper announced that government investment in R&D would rise.

It said:-

Public spending on R&D will increase to £20 billion a year by 2024-25, a cash increase of around a third compared to 2021-22. This is the largest increase in R&D spend ever over a Spending Review period.

One part of this increase is £2.6 billion which has been allocated to Innovate UK programmes over the Spending Review period. Funding for the nine ‘Catapults’, the technology and innovation centres established by Innovate UK, will increase by 35% (to £1.6 billion).

In addition to this, government extended the Made Smarter programme to the East Midlands. This is intended to help SME manufacturers boost productivity via advanced digital technology.

Reforms to R&D tax credits and expenditure credits

Slightly more surprisingly, the Chancellor announced new measures to reform R&D tax credits and expenditure credits, making them less likely to be targeted by fraud. T

The key R&D tax changes which took place from 1st April 2023 are as follows:

• The Research and Development Expenditure Credit (RDEC) increased from 13% to 20%
• The SME additional deduction decreased from 130% to 86%
• The SME credit rate decreased from 14.5% to 10%

Unfortunately, these changes will result in 30% less tax benefit being available to businesses. This will hit many SMEs particularly hard.

In addition to this, the government intends to consult on the design of a single RDEC-style scheme for all businesses. Government also intends to “work with industry to understand whether further support is necessary for R&D intensive SMEs, without significant change to the overall cost envelope for supporting R&D”.

Other R&D changes to note

Although previously announced, there a few other R&D changes to note. These are:

• You can now receive a maximum of £250,000 via the Seed Enterprise Investment Scheme (SEIS). This is an increase from £150,000.
• At the same time, the value of options that can be granted via Company Share Options Plans increased to £60,000. Share class restrictions have also been removed.
• The Annual Investment Allowance rate has remained at £1 million
• Since 1st April 2023, you only have 6 months from the end of the accounting period in which R&D activity has occurred to make a claim, unless you have made a similar claim in the previous 3 years.

Summary

The changes to government R&D expenditure were a mixed bag for businesses. On the plus side, more funding is being poured into Innovate UK schemes and the nine ‘Catapult’ centres. On the downside, the amount of funding available via combined R&D tax credits and R&D expenditure credits has fallen.

If you feel that you may have a project that qualifies for R&D tax credits, or would like some more detail about how the changes impact your business please get in touch with your THP account manager.