Published 17/05/2024
Modified 17/05/2024

Major Updates to UK R&D Tax Credits | 2024

Discover the latest updates to the UK R&D Tax Credits Scheme effective from April 2024. Understand key changes including merging schemes, revised rates, and expanded qualifying expenditures, tailored for businesses engaged in innovation. Read now to optimise your R&D tax strategy!

Comprehensive Guide to the 2024 Changes in the UK R&D Tax Credits Scheme

Introduction

In an effort to foster innovation and maintain the UK’s competitive edge in global markets, the government has announced substantial reforms to the UK R&D Tax Credits scheme, effective from April 2024. These changes, detailed in the Autumn Statement 2023, are aimed at simplifying the claims process, incentivising more targeted R&D investments, and ensuring efficient use of government resources. This guide will delve into the specifics of these changes, helping businesses, especially those in the technology and science sectors, understand how to navigate the new landscape and maximise their benefits.

Understanding R&D Tax Credits

R&D Tax Credits are a government incentive designed to encourage companies to invest in innovative projects within the UK. They allow businesses to reduce their tax bill or receive a payable tax credit through a deduction of their R&D expenditures. Understanding these benefits is crucial for companies striving to innovate and grow in an increasingly technology-driven market.

Key Changes in the UK R&D Tax Credits Scheme

In a significant move, the existing Research and Development Expenditure Credit (RDEC) and the R&D scheme for small and medium-sized enterprises (SMEs) will be merged into a single, streamlined scheme. This merged scheme aims to reduce administrative burdens and create a more cohesive framework for supporting R&D across all business sizes.

Adjustments to Rates and Caps

The new scheme introduces crucial adjustments to the relief rates:

  • Increase in RDEC rate: Previously at 13%, the RDEC rate will rise to 20%, offering larger companies a greater incentive to undertake ambitious R&D projects.
  • Reduction in SME rates: The additional deduction rate for SMEs will decrease from 130% to 86%, while the payable credit rate for surrenderable losses will drop from 14.5% to 10%. These changes are intended to recalibrate the focus towards more direct and impactful R&D activities.
Enhanced Support for R&D Intensive SME’s

Acknowledging the vital role of smaller, research-driven companies, the government will introduce enhanced support for R&D-intensive SMEs. This initiative will provide higher tax credits to eligible SMEs, ensuring they receive the necessary financial support to continue their innovative activities.

Emphasis on Domestic R&D

The updated scheme places a strong emphasis on domestic R&D efforts. While provisions are made for necessary overseas R&D expenses under specific conditions, the primary focus remains on fostering innovation within the UK. This move aligns with the government’s broader economic goals of boosting domestic growth and technological advancement.

Digital and Detailed Claims Process

To enhance transparency and streamline the claims process, all R&D tax credit claims will need to be made digitally starting from August 2023. Detailed documentation of R&D activities will also be required, aiming to improve the accuracy and efficiency of assessments and compliance.

Expansion of Qualifying Expenditures

Reflecting the evolving nature of technology and innovation, the definition of qualifying expenditures will now include costs related to data and cloud computing. This expansion ensures that modern R&D activities are adequately supported under the tax credits scheme, enabling businesses to leverage cutting-edge technologies in their R&D efforts.

Impact on Businesses

These changes represent a shift towards a more integrated and strategic approach to R&D Tax Credits. Businesses will need to adapt to these changes by re-evaluating their R&D strategies and ensuring their activities align with the new criteria to maximise potential benefits. Consulting with tax specialists such as Innovation Tax, with relevant experience will be crucial in this transition.

Conclusion

The reform of the UK’s R&D tax credits scheme marks a strategic update designed to bolster the country’s innovation landscape. By simplifying the tax relief process and adjusting support mechanisms, the government aims to encourage sustainable and impactful R&D investments. For businesses, understanding and adapting to these changes will be key to leveraging the benefits and continuing to innovate in the ever-evolving global market.

The detailed guidance can be viewed here.

HOW CAN WE HELP?

At Innovation Tax, we dedicate time to our clients and partners to inform them of changes and new developments which may be of interest and go over and above expectation to demonstrate that we are not just R&D Tax experts.

Start the conversation with a complimentary, no-obligation chat about your R&D work.

Innovation Tax specialise in helping companies access vital innovation tax incentives and grant funding to enable their businesses to grow, increase profitability, reduce risk and enable further investment in R&D, IP and capital assets.

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