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Changes to R&D Rates for SMEs

The amount of R&D Tax Relief that applies to qualifying expenditure has changed since the 1st of April 2023.

In summary, the rates of relief available through the SME R&D Tax Relief scheme have reduced, whilst the amount of relief available through the large company Research and Development Expenditure Credit (RDEC), has increased.

The SME scheme’s enhanced expenditure rate has decreased from 130% to 86%. For profitable companies, this reduced enhancement rate may be partially offset by the increase in the rate of corporation tax to 25%.

Furthermore, the surrender rate (the rate at which businesses can surrender an enhanced loss to generate a cash repayment) has also decreased to 10% for most claimants. The exception is for loss-making companies that invest at least 40% of their total outgoings in qualifying expenditure and can still apply the existing surrender rate of 14.5%.

As a result, the maximum rate of relief available to businesses under the new rates has reduced from 33% down to 27%, but it will be much lower in many cases.

It’s not all doom and gloom though, as certain cloud computing solutions and data licensing costs are now eligible for relief, subject to being associated with activities that directly contribute to resolving scientific or technological uncertainties.

HMRC have also introduced a new additional information form, which we will provide more detail on with another blog post in the coming weeks.

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