Government looks again at R&D tax changes for SMEs

The Government has announced a consultation into the allocation of R&D tax credits following concern over a cut in funding for small businesses.

The eight-week consultation, which runs from 13 January to 13 March 2023, sets out proposals on how a single scheme would replace the two R&D tax relief schemes, the Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief.

A consultation document from the Government published this month acknowledged there was “merit to the case for further support” to SMEs, particularly in the life sciences sector.


In his Autumn Statement, Chancellor Jeremy Hunt moved investment incentives towards larger companies causing concern among trade bodies.

It was announced that on 1 April the RDEC rate will be increased to 20 per cent from 13 per cent, the SME deduction rate will be reduced to 86 per cent from 130 per cent, and the SME credit rate decreased to 10 per cent from 14.5 per cent.

The consultation invites views on the design of a potential single R&D tax relief scheme and the Government says it welcomes views from businesses, representative bodies and accountants informed by experience with the existing R&D schemes

However, it is expected the level of support for SMEs following the consultation, will still come under what it was prior to the Autumn Statement.

Changes also announced by the Chancellor in November, included new eligibility criteria from 1 April 2023:

No overseas R&D

Subcontracted spend from outside the UK will no longer be eligible for inclusion in R&D claims.

The aim of this is to bring more R&D activity to the UK and incentivise companies to move operations into the UK.

Cloud costs will now be eligible

Currently, costs relating to cloud-based technology can’t be included in an R&D claim.

From April 2023, cloud-based computing costs such as AWS will be eligible for inclusion.

Other changes in April include:

  • Claims must be submitted digitally
  • Claims must include additional information
  • Claims must be supported by a named officer of the company
  • Claims must include details of any associated agents.

Need help with claiming R&D tax credits? Contact us today.

Posted in Business, Tax Credits.