Page 7 - HMRC changes APR23

04. Changes to tax credit relief rates for the SME scheme
a hydraulic hammer to crack a nut?
In an apparent attempt to reduce the financial impact
of a burgeoning number of claims under the SME schemethe government announced a significant cut to the enhancement rate applied to eligible expenditure, from 130% to 86% of expenditure, from April this year. The effect of this will be to reduce the net tax benefit for a tax- paying company from 24.7% currently to 21.5% on eligible expenditure incurred from 1 April 2023.
However, it will be loss-making companies who suffer the most. For many years now, SMEs in a loss-making position have been able to surrender their losses for a cash credit of 14.5%. However, this rate is being reduced to 10% from April 2023. The effect of this will be to reduce the potential tax benefit from 33% of eligible spend to 18.5% from April 2023.
In recognition of the significant impact such cuts in
tax credit rates could have on the funding of young innovative SMEs, the Chancellor, in his 2023 spring budget, announced an enhanced relief rate for “R&D intensive SMEs.” This will allow SMEs spending more than 40% of their total expenditure on R&D to claim a tax benefit of 27% of expenditure from April 2023.
While this is a welcome move and will provide an invaluable injection of funds back into young innovative companies, it also creates yet another administrative burden for those companies in having to prove and (continued overleaf)
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