More changes have come for SMEs regarding R&D tax relief in this budget, changes that were already scheduled for 1 April 2023 include:

1. Enhanced deduction which SMEs could claim for qualifying R&D expenditure would reduce from 130% to 86% .
2. SME tax credit would reduce from 14.5% to 10% (the rate at which a company receives a repayable tax credit if the company surrenders losses which have been created by qualifying R&D expenditure).
3. Restrictions would be introduced regarding the amount of overseas expenditure that could be included in R&D tax relief claims.
4. For large companies Research and Development Expenditure Credit (RDEC) would increase from 13% of qualifying expenditure to 20%.
5. The scope of qualifying expenditure will expand to include the costs of datasets and cloud computing.
6. Claims will have to be made digitally, and the senior officer of the company and the agent will both need to be named.
7. Businesses who have not made an R&D claim before will have 6 months after their year-end to inform HMRC of their claim.

The above points to a general reduction of tax relief available to SMEs, whilst making it more attractive to larger companies. A government that wants to turn the UK into the next Silicon Valley is reliant on the innovation of small businesses, which are being cut from the scheme. The primary driver for this has been government concerns about the abuse of the scheme. However, some in the tech sector have argued that instead of cutting vital innovation funding, the solution lies in the use of technology to solve the fraud problem. The sector has been calling out for a reversal of R&D tax rebates for SMEs, fearing for the fate of the national start-up ecosystem and UK innovation as a whole. There had been a suggestion that the SME regime may be merged with the large company scheme in the future, but at present, the two schemes continue to operate in parallel.

The R&D scheme announced in the Spring Budget which is to take effect from 1 April 2023 is targeted specifically at loss-making R&D-intensive SMEs. R&D-intensive SMEs are businesses whose qualifying R&D expenditure is worth 40% or more of their total expenditure. Changes that were announced:

1. The restrictions on the amount of overseas expenditure that can be included in R&D tax relief claims will be delayed until 1 April 2024; and
2. For SMEs who are heavily involved in R&D, the repayable tax credit will remain at 14.5% rather than the reduced 10%.

What does this mean in real terms for SMEs?

The repayable tax credit is only available to companies that have a loss that they surrender to HMRC. Under the current rules (which end on 31 March 2023) companies spending £100 on R&D, can obtain a repayable tax credit of £33.35. Under the new rules Companies heavily involved in R&D spending that same £100 on R&D will only receive a repayable tax credit of £26.97 by virtue of the reduced enhanced deduction – a loss of £6.38 for every £100 spent on R&D. Seeing an actual reduction in tax relief. However, this is still better than SME companies that don’t qualify for the additional credit available to R&D-intensive SMEs, who can claim £18.60.

Economy Forecast

• The economy is set to grow by 1.8% next year, growing by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027.

Government Debt

• The government debt is on track, with underlying debt to be 92.4% of GDP by next year, falling every year after until 2027-28.

Childcare

• The government will fund schools & local authorities to increase the supply of wraparound care, all parents of school-age children will be able to drop their children off between 8 am and 6 pm.
• 30 hours of free weekly childcare to be extended to cover children from 9 months to 4 years, where both parents work at least 16 hours, the provision applies within term time (38 weeks of the year).
• The Qualifying Care Relief threshold is doubling to nearly £18,140 which will mean a tax cut for a qualifying carer, averaging £450 a year.
• Parents on Universal Credit will receive upfront up to £951 for one child and £1,630 for two children per month.
• The government is to pilot incentive payments of £600 for childminders joining the profession or £1200 to those who join through an agency.
• Nursery funding will increase from September to £204m increasing to £288m next year.
• From next year qualifying caregivers will see their tax-free allowance rise from £10,000 to £18,000.

Returning to work

• For the over 50s there will be midlife MOTs, ‘returnership’ apprenticeships and changes to pension limit.
• The Administrative Earnings Threshold will rise from the equivalent of 15 hours to 18 hours at National Living Wage.
• £400m has been allocated to increase the availability of mental health and musculoskeletal resources for workers.
• There will be an additional support programme to help disabled and those with long-term conditions into work. The government will spend up to £4,000 per person providing support & help to find appropriate jobs. Funding 50,000 places every year.
• There will be an £11.5m employment support program to help up to 10,000 Ukrainians in the UK, providing English language training, employment support and improve employment outcomes.

Pensions

• The pensions annual tax-free allowance will increase from £40,000 to £60,000 and the Lifetime Allowance previously set at £1.07m will be abolished.

Fuel Duty and Energy

• The planned increase of 11p in fuel duty will be cancelled and the 5p reduction will be maintained for a further 12 months.
• The Energy Price Guarantee will remain at £2,500 a year for a typical household until the end of June, saving the average family £160.
• From 1 July the premium energy prepayment meters customers pay will come to an end. Bringing prepayment meter charges in line with comparable direct debit payments, saving households an average of £45 a year.

Alcohol duties

• Alcohol duties will rise in line with inflation.
• From 1 August the duty on average strength draught products in pubs will be up to 11p lower than the duty in supermarkets.

Digital

• There will be a £1m prize for AI research every year for the next 10 years, for the most ground-breaking AI research.
• The government will accept 9 of Sir Patrick Vallance’s recommendations to better regulate the digital technologies of the future, such as AI.

Business Tax 

• Small or medium-sized businesses can claim a credit worth £27 for every £100 they spend, if they spend 40% or more of their total expenditure on Research and Development.
• Annual Investment Allowance will be increased to £1m for smaller businesses, meaning 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits.
• Corporation tax to increase from 19% to 25%. Firms which make a profit of more than £250,000 will pay 25% tax on their profits from April.
• There will be tax relief support for Film, TV & Video Game Industries.
• Tax will be cut for companies that want to invest in the UK, reducing their tax by up to 25p for every £1 they spend on plant and machinery.

Voluntary sector

• £10m will be assigned for the next 10 years for the voluntary sector to stop families from experiencing suicide.

Levelling up

• There will be 12 new Investment Zones in the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool, and at least one in each of Scotland, Wales and Northern Ireland. To grow strengths in key industries, level up, attract new investment into communities, create jobs and drive growth.
• £400m to roll out Levelling Up Partnerships, helping regenerate 20 places across England.
• The third round of the Levelling Up Fund has been confirmed, providing a further £1bn to local communities to invest in new local priority infrastructure projects.
• £8.8bn for a second round of the City Region Sustainable Transport Settlements, to help develop mass transit networks and sustainable transport options across England’s city regions.

Leisure Centres

• A £63m fund to support public leisure centres with swimming pools. £40m will go towards making pools more energy efficient in the long term, with £20m to help leisure centres deal with rising costs.

Environmental

• Nuclear power will be classed as “environmentally sustainable”, giving it access to the same investment incentives as renewable energy.
• There will be £20bn of funding to support carbon capture & storage projects across the UK.

Defense

• £11bn is to be added to the defense budget over the next five years, and it will be nearly 2.25% of GDP by 2025.
• £33 million to help veterans over the next 3 years access extra housing, with additional support to help veterans with specialist care for physical injuries

There have been a few predictions made on the Spring Budget tomorrow. Here are a few we have come across.

Pensions
It is predicted workers will be able to put more money into their pension pot before being taxed, in a bid to get workers to stay in work longer. This budget package includes, the pension lifetime allowance (LTA) will be increased from £1.07m to £1.8 (or £1.5m according to different sources), along with an increase in annual allowance from £40,000 to £60,000 and the money purchase annual allowance (MPAA) (which limits the amount people can put into their pension tax-free after accessing their pot) is predicted to increase from £4,000 to £10,000.

Long-Term Sick
The Chancellor is reportedly planning a ‘sick note crackdown’, focusing on getting long-term sick people back into work with the support they need, rather than being signed off work. This is predicted to happen alongside changes to the benefits system, allowing sick people who work part-time to claim some sickness benefits.

Energy Bill Support
The Government’s Energy Price Guarantee, which caps energy costs for households, is scheduled to rise from £2,500 to £3,000 on April 1. It is predicted that it will be kept at that level for another three months until July. From July, when the price guarantee ends, it’s expected bills will fall to £2,000 as wholesale gas prices fall.

Fuel Duty
It is predicted the expected RPI inflation rise on fuel duty in April, which would add 7p to the price of a litre of fuel, will be canceled. In addition, the temporary 5p fuel duty cut, which is set to expire this March will be continued.

Corporation Tax
The expected corporation tax rise in April is expected to go ahead, seeing businesses face a six percentage point increase in the corporation tax rate, taking it from 19pc to 25pc. Businesses with profits of more than £250,000 will be hit. Companies with profits between £50,000 and £250,000 will get marginal relief. For businesses with profits of less than £50,000, there will be no change, and they will continue to pay corporation tax at 19pc.

It is predicted the corporation tax super-deduction, which allows businesses to cut their tax bill by 25p for every £1 that they invest, will end on March 31.