Last week, Chancellor Jeremy Hunt unveiled his first Autumn Statement. His intention was to announce a package of measures that would help get inflation back under control and calm the markets. Unfortunately, many of these announcements will hit a large number of people in the pocket. Frozen tax thresholds, more people being sucked into the additional rate of income tax, slashed tax-free allowances for CGT and dividends. These were just a few of the headline policy changes. However, Jeremy Hunt also 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 were announced?
The official Autumn Statement Policy Paper announced that government investment in R&D would rise.
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 is extending 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. These come on top of the reforms that are already being introduced in April 2023.
The key R&D tax changes from 1st April 2023 are as follows:
- The Research and Development Expenditure Credit (RDEC) will increase from 13% to 20%
- The SME additional deduction will decrease from 130% to 86%
- The SME credit rate will decrease 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:
- From April 2023, you can 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 will increase to £60,000. Share class restrictions will also be removed.
- The Annual Investment Allowance rate will remain at £1 million
The changes to government R&D expenditure are a mixed bag for businesses. On the plus side, more funding will be 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 will fall.
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.
About Kirsty Demeza
With a portfolio that ranges from startups to companies with a £10 million turnover, Kirsty’s talent for working closely with her clients ensures her services remain in strong demand.
“The most rewarding part of my role is seeing clients succeed,” she says. “When you help a new business and watch it expand into new premises and secure big contracts, it’s a great feeling.” Kirsty never finds two days are the same.
As well as providing accounting services that range from self-assessment tax planning and VAT to audit and accounts, she’s part of THP’s sales team and closely involved in helping our trainees to develop their skills.