At Business Innovation Group, we are always at the forefront of policy changes that impact innovation and growth. The UK government’s announcement of reforms to the research and development (R&D) tax reliefs, effective from April 2024, marks a pivotal moment for businesses engaged in R&D activities. These changes, aimed at simplifying the system and promoting economic growth, are significant for our clients and the broader innovation community.
Understanding the Merged R&D Scheme:
One of the most notable changes is the merging of the research and development expenditure credit (RDEC) and the small and medium-sized enterprise (SME) intensives scheme. This integration means a unified set of qualifying rules, streamlining the process and removing complexities associated with the previous system. The merger is poised to create a more conducive environment for businesses innovating in science and technology.
Contracted-Out R&D – A Focused Approach:
The new rules provide clarity on contracted-out R&D activities. Companies can now claim R&D relief for outsourced work related to their projects. This move aligns the relief with companies spearheading the R&D efforts, ensuring that those taking the initiative are duly rewarded. However, it’s crucial to note that subcontractors cannot claim relief for work that’s part of another company’s project.
Rethinking Subsidized Expenditure:
Under the reformed scheme, subsidized R&D expenditures will not diminish the support available, encouraging companies to seek additional funding without fear of losing out on tax reliefs.
Refinement in EPW Rules:
The reforms have clarified the treatment of externally provided workers (EPWs), particularly in removing overseas expenditure from relief claims. This refinement ensures that the relief is more targeted and effective.
Step 2 Reduction – A Boon for Loss-Making Companies:
The reformed RDEC payments will include an adjusted notional tax application, particularly benefiting loss-making companies by offering more immediate cash benefits. This change is a significant boost for startups and early-stage companies investing heavily in R&D.
Smooth Transition:
Recognizing the need for a smooth transition, these changes will apply to accounting periods starting on or after 1 April 2024. Businesses have time to adapt to these changes, which will be crucial for planning and strategy.
Enhanced Support for R&D Intensive SMEs:
The SME intensive scheme, with a newly reduced threshold for R&D intensive companies from 40% to 30% of total expenditure, shows the government’s commitment to supporting highly innovative SMEs. This adjustment allows more SMEs to qualify and benefit from additional support.
In conclusion, these reforms represent a significant shift in the UK’s approach to R&D tax incentives. As your R&D advisory partner, we are here to help you navigate these changes, ensuring that your business maximizes its potential benefits. The future of innovation in the UK looks bright, and we are excited to be part of your journey in this evolving landscape.
Contact Us: For personalized advice and how these changes impact your specific business, feel free to reach out to our expert team.
