WhisperClaims Response to Autumn Statement 2023
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The Chancellors statements today in Parliament relating to the R&D tax scheme were incredibly short, but delving into the detail of the Policy Decisions section of the full statement uncovers a lot more detail, as does the associated Policy Paper that was published in parallel: “Autumn Statement 2023 Research and Development Tax Reliefs Reform”.
We have to remember that the changes announced today come after a long period of consultation, change and new proposals from HMRC all designed to tackle scheme non-compliance and the Chancellor has declared that, with the announcements made today, the Government is closing the review of the scheme.
This should at least give service providers and business owners some degree of confidence that we now face a period of stability for the scheme.
A new merged scheme
The main news, that we were all expecting in the announcement, was that the SME and RDEC schemes will merge next year, whilst a separate scheme for “R&D intensive” SMEs will exist in parallel.
What we didn’t know was the timescale. It is now clear that for claims for accounting periods beginning on or after 1 April 2024, there will only be two R&D schemes available: the merged scheme and the SME-intensive scheme.
This amounts to a fairly significant delay to the timescales announced in the draft legislation earlier this year, where potentially any R&D expenditure made after 1st April 2024 would have been affected.
We consider this delay to be a good thing. It gives service providers and business owners some additional time to consider the changes and adopt appropriate working practices in time to accommodate them effectively.
Introducing an “above the line” credit for SMEs, in line with the current RDEC scheme, removes a huge area of uncertainty for SME businesses – under the current scheme, it isn’t clear what tax benefits an SME might realise until after the claim is prepared and their accounts are finalised.
This new approach means in simple terms that SMEs will receive a 20% credit for any qualifying expenditure. This will go a long way towards removing confusion about the benefits of the scheme
News for R&D Intensive SMEs
The proposed “R&D intensive SME” scheme has also been adjusted – to lower the intensity threshold from 40% to 30%, bringing approximately 5,000 more R&D intensive SMEs into the scope of the relief, as well as introducing a grace period, so that companies that dip under the 30% qualifying R&D expenditure threshold will continue to receive relief for one year.
This, along with other measures, is designed to bring stability to claimants who can perhaps be more confident about the reliefs they are able to access.
In merging the two schemes, the government have greatly simplified two areas; the rules associated with contracted-out R&D (adopting the current SME scheme rules) and removing any restrictions on subsidised expenditure (including grants) – both measures mean that the administration of the two schemes is simpler and easy to understand – whilst there will be a period of adjustment, it’s clear that these measures will be positive in the long term.
Third-party payees no longer allowed
One of the areas of discomfort expressed by HMRC about service providers in this space is the widespread use of contingent-based (success fee) pricing models and this has been seen as a driver of bad behaviour as service providers seek to maximise fees by pushing the boundaries of the scheme.
A number of specialist providers adopt this approach, along with acting as a payee for the clients and capturing payments from HMRC on their client’s behalf before passing on the monies, excluding their fees.
Perhaps lost in the details is a really significant measure to tackle these operating models. From 1 April 2024, R&D claimants will no longer be able to nominate a third-party payee for R&D tax credit payments, subject to limited exceptions. In addition, no new assignments of R&D tax credits will be possible from 22 November 2023. We fully support this measure and believe this is likely to have a significant and positive impact on the market by removing some unscrupulous behaviours.
Stability on the horizon
Overall, we welcome the simplification measures announced today, and the measures taken to clamp down on areas of activity that have previously affected the reputation of the scheme – and whilst the sector has gone through a period of significant change over the past twelve months or so we trust that the Chancellors announcement about closing the review of the scheme will lead to some stability and therefore business confidence in the coming years.
If you missed our webinar “What’s going on with R&D tax relief? – Now and in the future…” and want to learn more about the changes in the latest Autumn Statement, you can watch back here
And, if you’d like to know more about how WhisperClaims is helping accountants to deliver R&D tax claims more effectively why not book a personalised 1-2-1 demo ? Or join one of our upcoming product showcase webinars