During the 2022 Spring Statement, it was envisaged that the main tax event of 2022 would be an Autumn Budget.
The new Chancellor, Kwasi Kwarteng, using the 'mini-budget' (officially named "The Growth Plan 2022) announced significant UK tax changes in his presentation to Parliament addressing challenges posed by the energy and general economic crisis as well as attempting to boost the supply side of the economy.
The measures announced suggest estimated reduction in tax revenue of about £45 billion by 2026/27.
Non-taxation measures include tackling energy prices, enhancing growth, creating investment zones with tax advantages, getting more people into work with the right skills, moving the property market and improving infrastructure.
Corporation Tax measures announced include:
- Corporation Tax: cancellation of the planned rate increase (to 25%), maintained at 19% from April 2023.
- Bank Corporation Tax Surcharge: The 8% rate and set allowance at £100m maintained from April 2023.
- Annual Investment Allowance (AIA): permanently set at £1m from April 2023.
- Employee share schemes: Company Share Option Plan reforms (share class and £60k option limit) from April 2023.
- Venture capital schemes: increase Seed Enterprise Investment Scheme limits from April 2023.
Impact of the cancelling of the Corporation Tax rate increase from 19 % to 25 % on the R&D tax relief scheme for R&D Tax claimants
The impact is dependent on whether your company qualifies for relief under the SME scheme or the large company RDEC scheme.
SME Scheme
Should the tax rate have been increased, the scheme relief would have been more lucrative. As assuming £100,000 of eligible expenditure, then the enhanced deduction allowable would be £130,000 at 130%.
Under the existing 19% tax rate, this is a tax saving of £130,000x19% = £24,700 and the tax saving assuming 25% corporation tax would have been £130,000 x 25% or £32,500, a difference of £7,800 for every £100,000 of eligible R&D expenditure.
The caveat to this is that the Income Tax rate would have been 6% higher (or an additional £6,000 corporation tax payable) for every additional £100,000 in taxable profit.
RDEC Scheme
For the RDEC scheme, whilst the enhancement rate of 13% remains unchanged, an increase in the tax rate would have negatively impacted the scheme, as RDEC claims are treated as income in the stat accounts and are therefore subject to MRCT.
The net benefit is therefore derived after tax. In this example a reduction of £780 per £100,000 incurred of eligible expenditure.
The comparative net claim would be as follows for the two different tax rates:
| Eligible Expenditure | Expenditure enhancement rate | MRCT due | Net Benefit after tax at MRCT | |
|---|---|---|---|---|
| £100,000 | £13,000 (13%) | 19%/£2,470 | £10,530 | |
| £100,000 | £13,000 (13%) | 25%/£3,250 | ££ 9,750 |
Research & Development Forum
In 2021, the Government launched a consultation to review the Research and Development (R&D) tax reliefs in which MMP took part. As a result some changes have been announced including the allowance of mathematics, data and cloud computing costs from expenditure incurred from 01 April 2023 as qualifying costs; and excluding overseas subcontracting costs focusing government funded innovation incentives in the UK.
If you have any questions on how the above will impact your business or your current and planned claims, please get in touch or to speak to one of our team
David and Alexis are the founding Directors of MMP Tax.
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