R&D Tax Credit Changes And What They Mean For You

Yesterday, Chancellor Jeremy Hunt set out the UK tax and spending plans for the future in the Autumn Statement. The Statement brought many changes to the Research and Development tax credit scheme, which we’ll look to break down in this article. We’ll cover the facts of the changes, what that means for businesses, and at the end, I’ll provide my view on the changes and what I think it means for UK innovation in general.

Whilst there were rumours that the wider R&D budget was due to be scrapped, the Chancellor instead reaffirmed the government’s commitment to R&D and reemphasised the belief that science and innovation is one of the UK’s greatest strengths. As such, public spending on R&D will increase to £20bn a year by 2024-25[1]. There were, however, important reforms within the R&D tax scheme itself, which have been described as a “rebalancing” of R&D tax credits between the SME scheme and the Research and Development Expenditure Credit (RDEC) scheme. In part, the changes were due to a desire to increase compliance and tackle fraud within the industry.


Key Changes to the R&D Tax Credit Scheme

Following a series of consultations in recent months, changes to the R&D scheme were long predicted, with the aim of ensuring that taxpayer support is allocated as effectively as possible[2].

The key changes, which are set to come into effect for expenditure “on or after 1 April 2023”[3], are as follows:

  • Changes to the RDEC incentive:
    • RDEC rate increased from 13% to 20%
  • Changes to the SME incentive:
    • Additional taxable deduction reduced from 130% to 86%
    • SME tax credit decreased from 14.5% to 10%

The changes are with the view of supporting the longer term aim to improve the competitiveness of the RDEC scheme, and are a step towards the government’s ultimate goal of achieving a more simplified, single R&D scheme for all businesses (large and small). The government plans to consult with the industry ahead of the design of a single scheme and whether any further support is necessary. These changes will be legislated for in Spring Finance Bill 2023[4].


Implication of changes to the Corporation Tax rate on R&D Tax Credits

As planned in earlier budgets, the Chancellor confirmed the increased rate of Corporation Tax will go ahead. This will see companies with over £250,000 in profits paying Corporation Tax at a rate of 25%[5]. Companies with profits under £50,000 will remain at a rate of 19%, whilst companies with profits between £50,000 – £250,000 will be subject to a tapered rate (between 19% – 25%), with these changes set to come into effect from April 2023.


What That Means (In Numbers)

The planned changes to R&D tax credits will naturally be impacted by the level of Corporation Tax that is paid by a company, given how the R&D tax credit scheme is fundamentally based on the Corporation Tax rate. The effect that both the new Corporation Tax rate and the changes to the R&D scheme have on the net benefit received by businesses is summarised below. These figures are assuming a company has profits over £250k and is hence subject to the new 25% Corporation Tax rate.

  • Where an SME makes a profit of under £50,000 (and hence subject to Corporation Tax at 19%), the benefit received would be 16.34%, with profits between £50,000 and £250,000 resulting in a benefit between 16.34% and 21.5%.
  • For businesses applying under RDEC, the benefit will range from 15% to 16.2% depending on the Corporation Tax rate (with higher Corporation Tax resulting in a smaller benefit, due to the taxable nature of the RDEC benefit).


Other R&D Changes Yet to be Implemented

The Autumn Budget in 2021 brought changes to the R&D scheme which we’ve yet to see implemented. These changes are still planned to go ahead and will be supplementary to the 2022 Autumn Statement. These include:

  • Expanding the scope of qualifying expenditure to include costs spent on data and cloud computing
  • Reducing the scope of qualifying subcontractor costs to be limited to UK-based subcontractors, in an effort to focus support on innovation within the UK
  • Targeting abuse and improving compliance

For more detail on these changes, check out our full article here.



With consultations ongoing, it is highly unlikely that these changes will be the last we see. Companies applying for relief under the RDEC scheme will see increased returns once the changes are implemented. Whilst the SME benefit has been reduced, with Corporation Tax rates increasing from 1 April 23, R&D tax relief still acts as a good incentive for innovative businesses. However, whilst the increased Corporation Tax rate does have benefits for the R&D scheme, it will be detrimental to so many businesses overall.


My View (opinions to follow, naturally…)

The objective of these changes is solid; the R&D tax credit scheme has long been abused by spurious providers who have misinformed businesses on what qualifies under the scheme in an effort to make a quick buck. This has not only created a terrible name for R&D consultancies, but has cost HMRC hundreds of millions[6]. These are funds that should have been invested into the many innovative businesses that are still not taking advantage of the scheme, despite undertaking qualifying activity and incurring qualifying expenditure. In short, reform was (and is) certainly needed.

However, the kneejerk move from the Chancellor to arbitrarily decrease the benefit provided to SMEs will have a hugely negative impact on the many SMEs that are taking advantage of the scheme and have relied on it to fund their innovation. Rather than tackling the actual issue of compliance, the easy option of simply decreasing the benefit of the SME incentive has been adopted. This not only fails to address compliance (the real problem), but does absolutely nothing to prevent fraudulent applications from being made.

Further, the seemingly ill-considered reduction to the SME scheme runs in direct opposition of the government’s desire to increase investment into R&D, at a period of time where innovation is more critical than ever for the UK to remain competitive on the global playing field. Coinciding with the general increase in processing times from 28 days to 40 days (with many applications greatly exceeding this), alongside the increase in random checks (further slowing the process), these changes to the SME scheme only serve to weaken the UK’s capacity for innovation.

It is not all bad news though. The much needed increase in RDEC benefit is long overdue and will come as a welcome change to large businesses, SMEs that are in receipt of grant funding and SMEs that are applying for RDEC relief due to being part of a larger group. However, without actually addressing the issue of compliance itself, this increase is just as open to abuse as the SME scheme.

Finally, the idea of a single unified scheme sounds great in theory; one would assume that it would bring reduced complexity and thus increased clarity for businesses, which we would be strongly in favour of. However, the concern is on implementation. From the changes seen so far, it’s possible that future changes could be at the detriment of benefit delivered to businesses, whilst still failing to address the very real issue of uncompliant applications.

In conclusion, it seems these changes (though well-intentioned) do nothing to fix the main problem the scheme faces, whilst reducing both the support and incentive for innovative businesses. Many companies have come to rely on the benefit from SME R&D tax credits to partially fund their innovation, without which, they may not have been able to justify the risk of some projects. The increase to the RDEC incentive is a welcome one and does leave some hope, and the desire to introduce a single R&D scheme means additional changes are almost guaranteed in the near future.

As always, we’ll keep you updated on any changes as they happen. If you want to understand how these changes will impact your application, or are keen to explore R&D tax credits for your business, feel free to get in touch with us at info@apogee.co.uk.

Thanks to Ben for all of his assistance with this article.



[1] AUTUMN STATEMENT 2022 (publishing.service.gov.uk) Paragraph 3.27 and 3.28

[2] AUTUMN STATEMENT 2022 (publishing.service.gov.uk) Paragraph 5.52

[3] AUTUMN STATEMENT 2022 (publishing.service.gov.uk) Paragraph 5.52

[4] AUTUMN STATEMENT 2022 (publishing.service.gov.uk) Paragraph 5.52

[5] Corporation Tax charge and rates from 1 April 2022 and Small Profits Rate and Marginal Relief from 1 April 2023 – GOV.UK (www.gov.uk)

[6] R&D_Tax_Reliefs.pdf (publishing.service.gov.uk) Paragraph 2.29