New consultation on R&D tax relief reforms

The government has launched a consultation to streamline the UK's two research and development (R&D) tax relief systems into one scheme from 1 April 2024

The 8-week consultation, which runs until 13 March 2023, sets out proposals on how a simplified, single scheme would replace the two current R&D tax relief schemes:

• the Research and Development Expenditure Credit (RDEC)
• the small and medium enterprises (SME) R&D relief

A scheme modelled on the current RDEC for SMEs would give decision-makers in smaller companies clearer information, which will help them set budgets for R&D. In contrast, those claiming SME tax relief under the current setup, are likely to only know with certainty the exact amount of money their firm will receive at the end of accounting period.

This consultation is part of the government's ongoing R&D tax relief review, and follows changes announced at Autumn Statement 2022 where the reliefs available under the two R&D tax schemes were broadly aligned.

For expenditure on or after 1 April 2023:

• the RDEC rate will increase to 20% from 13%
• the SME deduction rate will reduce to 86% from 130%
• the SME credit rate will decrease to 10% from 14.5%

The government says reform to the R&D tax relief rates will be challenging for some R&D-intensive SME companies and those in the life sciences sector in particular.

Views on the R&D reform proposals are welcomed from a wide range of sources, including individuals, companies, representative and professional bodies, and especially from research and development intensive businesses and those representing them.

Share your views on the design of a potential single R&D tax relief scheme.

If implemented, the new single scheme is expected to be in place from 1 April 2024.

First published 16 January 2023