A number of reforms were either announced or confirmed in the Autumn Statement, a summary of these is provided here. All these changes take place with effect from accounting periods beginning on or after 1 April 2024 unless otherwise stated.
R&D Tax Reliefs
Firstly, as expected, the two existing R&D relief schemes will be merged into a single scheme. Currently the R&D Expenditure Credit (RDEC) scheme applies only to much larger companies, or to those companies carrying out subsidised or subcontracted R&D. This will now be the scheme used for all R&D claims (with the exception below). Relief under this scheme is at a flat rate of 20% of the qualifying R&D costs, although this tax relief is itself liable to Corporation Tax, meaning the net benefit is lower. For loss making companies claiming the credit, Corporation Tax is withheld at the main rate of 25% currently, but today it was announced that the withholding rate will change to the lower 19% rate.
This compares to relief of around 18% of costs under the current small and medium company (SME) scheme (which of course is not taxable) so with the reduction in relief rates from earlier in 2023, there is not a huge difference between the two.
With this move there will no longer be a restriction on relief for R&D which is subcontracted to the company or subsidised, so this does represent a significant simplification. However what does not result in simplification is the second change, being the continuation of the separate and distinct scheme for “R&D Intensive” SMEs, which is effectively the old SME scheme with different rates. In the Autumn Statement it was announced that the threshold for companies to be classed as R&D Intensive is reducing from 40% to 30% (this is the percentage of tax deductible expenditure in the company which is qualifying R&D expenditure) which again is positive (government estimates this will bring 5,000 more companies into this scheme), however by keeping this scheme separate rather than simply applying a more generous rate in the main scheme, this represents a huge missed opportunity for simplification.
This is also likely to mean HMRC look a lot more closely at the make up of costs in a claim, particularly for companies where they are only just over the intensive threshold. If HMRC can successfully dispute a small amount of costs to bring the company below the threshold, suddenly the entire claim has to be recalculated under the other scheme with lower overall benefits, so this has the potential to become very complicated.
It is welcome news that the government are working to provide clarity on the rules around subcontracted R&D (making it clearer which company can claim) – there is draft legislation for this, but it is not quite final and should be published in the coming days or weeks.
The final change is that R&D tax credits will only now be able to be paid directly to the claimant company – so arrangements for an agent to collect the money and offset fees, for example, are being stopped. This was probably inevitable with the amount of fraud around and “rogue agents” but is a shame for genuine arrangements where this helped both clients and “good” agents to plan cash flow.
In the Spring Budget, with the end of the “super deduction” allowance for plant and equipment, the government introduced “full expensing” for a period of 3 years to March 2026, enabling all limited companies to obtain full tax relief for all equipment purchases (with certain exceptions) in the year it is incurred. The Autumn Statement has made this relief permanent.
For the majority of small and medium sized companies this will mean very little, because a business spending less than £1 million per year on capital expenditure will get the same amount of relief from the current (and also permanent) Annual Investment Allowance. However this will be very good news for much larger businesses, or for smaller businesses that are carrying out significant infrastructure projects meaning they may have one off spikes in such expenditure.
At the same time, a consultation is being launched on wider changes to the capital allowances rules, so it will be interesting to see what further changes may start to be proposed in the coming months.
If you have any questions for our Tax experts as a result of this Autumn Statement, please contact us on 01242 776000 or firstname.lastname@example.org.