RDP Associates explains what’s in the Autumn Statement 2022. The SME R&D tax credit rate has been significantly reduced effective for R&D expenditures incurred after 1 April 2023. The uplift has been decreased from 130% to 86% (a surprisingly specific number) and the payable credit rate for loss making SMEs has been reduced from 14.5% to 10%.
As an example, an SME which has incurred £100,000 in eligible R&D expenditures, and is in a profit position. Will now only reduce its taxes payable by roughly £16,000 under the revised rates compared to £25,000 under the current rates.
An SME in a tax loss position that can surrender sufficient losses will receive a payable credit or refund of roughly £18,000 compared to £33,000 under the current rates. This is a large decrease!
These rates are also far below the R&D tax credit programmes for SMEs in Ireland, The Netherlands, France, Germany and just about every other country that has an R&D tax credit programme. The UK no longer has a competitive R&D tax credit programme for SMEs.
Further more, the SME R&D tax credit will be less than that of the RDEC scheme (RDEC being increased to a 20% refundable tax credit). Which is also a first for any R&D tax credit programme around the world. This seems like a regressive tax policy.
Also, what is this change in policy saying to the SME? I think the message really is that the government does not believe the quality and quantity of R&D carried out by the SMEs is sufficient to warrant a higher incentive. This is really deflating to all those SMEs, from start-ups to sustainable businesses everywhere.
Fraud, Abuse, and Non-Compliance in the Autumn Statement 2022
The political reason given by the Chancellor for the rate reduction was that the SME scheme. Was subject to fraud, abuse, and non-compliance. In my opinion, I don’t believe reducing the SME rate is a solution to this issue. Fraudsters will just double the amount they are claiming, as long as the programme is in existence.
One solution is to provide HMRC with the resources to step up queries and enforce penalties and compliance. This is what Canada did in 2012 and the Canada Revenue Agency brought the R&D tax credit programme quickly into compliance. Which eliminated the non-qualifying claims, at little cost to the public purse.
The Chancellor did say that the government wanted to move to one R&D tax credit scheme. So they would look to see how SMEs can benefit under a single scheme. However, any changes here are likely a few years off.
How can RDP Associates help?
Now more than ever, SMEs will have to ensure that they claim all eligible R&D projects, activities, and costs under the R&D tax credit schemes.
This is why RDP has developed our proprietary Innovation Connection Programme (“ICP”).
RDP Associates are members of the HMRC Stakeholders Group and wants to help businesses plan ahead for these changes.
So, to find out how you can ensure no stone is left unturned. And that you are claiming all R&D costs under the R&D tax credit programme, please contact our team today. If you are not sure you qualify for R&D tax credits or have a question about the autumn statement 2022. Please reach out to us at …. on 0208 214 1341 or email [email protected]