Spring Budget R&D tax announcements – a partial reversal…

In the Spring budget statement, the Chancellor confirmed almost all of Autumn Statement’s proposals – with two key exceptions:

1. The introduction of an enhanced rate for loss-making SMEs who qualify as ‘R&D intensive’. This is currently defined as those who spend 40% or more of their ‘total expenditure’ on R&D. The new rate - £27 for every £100 spent - will mean that these businesses only see a 19% reduction in their tax relief (as opposed to -44% for non-R&D-intensive businesses).
2. A delay to restrictions on overseas expenditure in R&D tax reliefs – the previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This is designed to allow the government time to consider the interaction between this restriction and the design of a potential merged R&D relief scheme.

The arbitrary cut-off point (40% of total expenditure) will penalise those who fall only marginally short of that figure. As an unintended consequence, this will add complexity and may lead to the redesign of corporate structures, with the goal of clearing the 40% hurdle and maximising tax reliefs.

All the other proposals remain intact – these include:

Cloud computing, data & pure maths
The government have confirmed the extension of the scope of qualifying expenditure to include costs of datasets and cloud computing. The definition of R&D for tax purposes is also being extended to include advances in pure mathematics.

Pre-notification
From April, companies considering applying for R&D tax relief will need to give advanced notification of their intention to claim within six months of the period-end for which they are planning to submit a claim. Companies that have already submitted a claim on any of the three previous periods will not need to give prior notification.

The claim submission process
All claims submitted after August ’23 will have to be submitted digitally and include a description of the R&D, a breakdown of qualifying costs, details of any R&D agent who has advised on the R&D claim and be signed-off by a senior officer of the company.

In summary…
The R&D tax relief landscape is now more complicated than ever – different rates, more eligible activities, new categories (R&D Intensive), pre-notification and new processes (including the implications of senior officer sign-off).

You can be confident that ABGI has the experience, resources and expertise to support you and your clients through these changes with the end goal of a robust, accurate and comprehensive claim.

If you have any questions or would like to share your views and comments on the above proposed changes to the scheme, please contact us. We’d be happy to discuss your situation and provide advice tailored to your needs.

Key changes: