Insights

The R&D tax credit rules will be changing soon, from 1 April 2024, but the latest information issued by the Treasury casts some doubt about whether the amendments due are exactly as expected.

During the most recent Autumn Statement, on 20 November 2023, Chancellor Jeremy Hunt confirmed that the government’s plans to reform the R&D tax relief, which includes the introduction of a new merged scheme for both SMEs and large companies, will go ahead.

Following this announcement, the latest Finance Bill has been published which would ordinarily detail all the key legislative points relating to it. However it included some discrepancies which suggest there may be further changes to be unveiled. This could also mean the amendments may not come into effect as soon as expected.

Originally, the new merged scheme was due to be introduced from 1 April 2024, but the Finance Bill does not specify the exact date. The legislation simply says that the new scheme will apply to accounting periods beginning on or after the “appointed day”, which will be confirmed by the Treasury in regulations. This means there may be more time available to submit applications under the original rules.

Other changes to the proposed amendments have also come to light, regarding the definition of ‘R&D intensive SMEs’. During the March 2023 Budget, Jeremy Hunt announced that any cuts to the level of relief available for companies through the small or medium-sized enterprise (SME) scheme would not apply for “R&D-intensive” SMEs. Instead, they would be eligible for ‘enhanced R&D tax relief’.

The latest Finance Bill legislation clarifies this position by confirming how the enhanced relief opportunity will work and who is eligible. Typically, SMEs will now have to claim under the new, less generous, merged scheme unless they satisfy the criteria for being R&D intensive and loss making. The current SME scheme will only be available for loss-making companies (or those with pre-trading expenditure) that qualify as R&D intensive. The criteria for being R&D intensive is to be spending at least 30% of relevant expenditure on qualifying R&D activities. The threshold was reduced from the original 40%.

If your company qualifies as R&D intensive but is profit making, it will not be eligible for the original SME scheme and will need to use the merged scheme.

There are questions to be answered and this new situation will make applications much more complicated. What happens if a company’s R&D activities fluctuate and they qualify as ‘intensive’ for one period and the not in another? And what happens if profits and losses also fluctuate? Added to this the government has stepped up its investigations into potential R&D tax relief fraud.

Thankfully the new Finance Bill legislation does provide a grace period of one year, which allows companies to continue claiming for tax relief under the R&D-intensive regime provided they only temporarily dip below the threshold. Clearly many companies will need expert support to navigate the new scheme rules and avoid unnecessary enquiries.

RJP has acted on behalf of hundreds of companies across London and the south east, helping them to claim R&D tax relief. If you would like to discuss whether your company may be eligible, or need support for an application, please contact us via partners@rjp.co.uk.