On November 22, 2023, Chancellor Jeremy Hunt made his autumn statement to members of Parliament in the House of Commons. Several interesting announcements were made by the Chancellor; some new, and others confirming or extending what has already been outlined by the government.
The Chancellor re-emphasised a commitment to simplifying the existing research and development (R&D) scheme by merging the SME scheme and R&D Expenditure Credit (RDEC) scheme, under which the R&D scheme currently operates.
The new merged R&D scheme will come into effect for accounting periods beginning on or after 1 April 2024, as planned. It will have the same rate of relief as the current RDEC scheme (whose rate was previously increased from 13% to 20% from 1 April this year).
Similarly, as previously announced, any overseas subcontractor or externally provided workers (EPW) costs will not be claimable under the merged R&D scheme. Although we await legislation on the merged scheme, yesterday’s statement shows the government is committed to the changes it has previously outlined. You can learn more about those changes in our guide to R&D Tax Relief Reforms 2023.
It was also announced that loss making companies will have their tax credit taxed at 19% as opposed to 25% (under the current RDEC scheme)—something that many will welcome.
Something else that many will welcome is the changed definition of “intensive” R&D. “R&D intensive SMEs” must now have a minimum of 30% costs as qualifying to claim the tax credit. This is down from 40% and will allow more businesses to claim the higher tax credit rate at 14.5% for accounting periods commencing on or after 1 April 2024.
This means that innovative SMEs, who are often the businesses that are pushing the boundaries of innovation, will still be rewarded at a preferential rate through the R&D tax relief scheme.
As signalled in the Spring Budget, the Chancellor committed to his plans for “Full Expensing: Invest for Less.” For those investing in IT equipment, plant, and machinery, this is an effective permanent tax cut of £11 billion a year, boosting business investment by £14 billion across the forecast period to grow the economy. Since the introduction of the super deduction in 2021 (which was the predecessor to full expensing), investment in the UK has grown the fastest in the G7.
This will provide some much-needed certainty for business leaders weighing up whether to invest in plant and machinery now or in the coming years.
The budget also covers £4.5 billion of funding for British manufacturers in the “high-growth industries of the future,” including £960 million earmarked for the Green Industries Growth Accelerator.
New investment zones were announced in West Midlands (focused on advanced manufacturing), East Midlands (focused on green industries and advanced manufacturing), Greater Manchester (focused on advanced manufacturing and materials), and West Yorkshire (focused on health tech and life sciences). Together, these would generate £3.4 billion of private investment and create 65,000 jobs within the next decade.
The Investment Zones programme and freeport tax reliefs will be extended from 5 years to 10 years, and a new £150 million Investment Opportunity Fund will support investment zones and freeports to secure specific business investment opportunities.
The Chancellor stated he will put in place a new medicine regulator, promising to give “rapid, often near-automatic approval for medicines and technologies already approved by trusted regulators in other parts of the world such as the U.S., Europe, and Japan.”
He also stated he will offer a £1 million/year prize for the next 10 years for the most innovative research in artificial intelligence.
Are you ready to navigate the R&D landscape following the Autumn 2023 budget? Reach out to a member of the team for personalised insights and strategic consultation or subscribe to stay informed of important tax issues and trends for the future of R&D in your industry.