The two existing research and development (R&D) tax relief schemes are set to merge, although the newly created scheme will be similar to the R&D expenditure credit currently claimed mainly by large companies.
Although the merger will remove the complexities when companies move between schemes, there will invariably be some who significantly lose out as a result of the changes. The merged scheme and other changes will apply in relation to accounting periods beginning on or after 1 April 2024. R&D expenditure credit (RDEC) Along with a deduction for the R&D expenditure itself, the RDEC provides for a 20% standalone credit. Since the credit is taxable, it is worth £15,000 for every £100,000 spent on R&D assuming the main rate of corporation tax applies. · For loss-making companies, the expenditure credit can lead to a repayment. · When calculating the repayment, the notional tax rate applied will in future be the profit rate of corporation tax of 19%. If not used to reduce the current year’s corporation tax liability, the expenditure credit – before any alternative use – is capped according to the amount of PAYE and national insurance contributions paid in respect of R&D workers. In future, the more generous cap from the SME scheme will be used. R&D-intensive SMEs Despite the merger, loss-making R&D-intensive small or medium-sized enterprises (SMEs) will still be able to claim a 14.5% repayable credit under the existing SME scheme. · Given there is an 86% uplift, this works out to a cash repayment of £26,970 for every £100,000 of qualifying R&D expenditure. · R&D intensity is calculated as the proportion of an SME’s qualifying R&D expenditure compared to total spending. The intensity threshold is to be reduced from 40% to 30%. Also, a one-year grace period will be introduced for companies that fall below the 30% threshold. HMRC’s guide to the RDEC as it currently applies can be found here. Comments are closed.
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