Suppose the claimant company is a loss-making small or medium enterprise (SME) whose research and development (R&D) expenditure covers at least 40% of their total spending during a financial period. From 1 April 2024, the intensity threshold will change from 40% to 30%.
In that case, the company is deemed to be referred to as an R&D-intensive SME.
What’s this change all about?
It was announced in the spring budget of 2023 and introduced to enhance support for R&D-intensive SMEs. This provides a higher rate of payable tax credits for eligible R&D-intensive SMEs. Instead of a 10% credit for loss-making SMEs, they will be given the eligibility to claim a higher rate of 14.5% if they meet relevant criteria. This will mean that additional analysis is required to ensure the correct determination of the surrenderable loss for loss-making companies.
How will it affect the claim value?
It won’t affect the qualifying expenditure, but it will affect the surrenderable loss should the company undertake analysis and check the costs of the qualifying expenditure in relation to the actual total expenditure in the profit and loss statement. If they meet the relevant criteria of 40% and above from 1 April 2023, they are deemed to be an R&D intensive SME.
Profit-making and non-R&D-intensive loss-making SMEs will be limited to 10% of the surrenderable loss, subject to the lower limits, and the reduction in tax subject to the appropriate tax rate for that SME for the period.
Profit-making and non-R&D-intensive loss-making SMEs will, for the accounting period beginning on 1 April 2024, be entitled to the new single merged R&D scheme.
There will be a one-year grace period to allow companies, which are unable to meet the intensity threshold due to any unforeseen circumstances, to continue claiming the benefit as long as they had met the intensity threshold and successfully claimed enhanced support in the year before.
Our opinion
This seems a slight reprieve from the rates change effective from 1 April 2023 and the realisation that SMEs would be losing out on the benefits of innovation and R&D, thereby providing support to SMEs for R&D, which is imperative for the growth of the company and wider economy. We must ask the question; are the scheme guidelines and rules being stretched a little too far and creating more complexity for companies to understand, and if these new guidelines are more complex than is it needed?
Is it time to rip off the band-aid and provide a simpler scheme and have specific qualifying criteria with no loopholes, which can impact companies claims unexpectedly?
Many companies are deferring claiming R&D as they deem the red tape has gone too far, and the effect is excessive, causing the costs of the claim and the potential downside, to outweigh the benefits.
The next step
For more information, please contact Susan Parker on s.parker@uhy-manchester.com, or your usual UHY adviser.
