July 2022: Get ready for R&D tax relief changes in 2023
The Government's changes to research and development tax claims will come into effect in 2023. Here's how the changes mi...
UPDATE: The government will announce a new fiscal plan on 31 October which may reverse some of the announcements in this article. On 14 October, the government confirmed the planned Corporation tax rise will go ahead.
On 23 September 2022, Chancellor of the Exchequer Kwasi Kwarteng presenting the Growth Plan 2022, which outlines changes to the tax system and business support schemes. The changes are intended to boost the UK economy in light of a looming recession.
In this post, we’ll explain what the changes are and how they might affect your business.
This is a mini-budget because there will be a ‘full budget’ later this year.
Corporation Tax Rate: Proposed rate rise cancelled
The proposed corporation tax rate rise to 25% has been scrapped by the government. The rate will remain at 19%, meaning that companies will not pay more tax on their trading profits, ensuring that cash remains in the business.
In 2021, the government announced a new corporate tax rate rise which was intended to come into effect on 01 April 2023. The proposed rate rise would hit profit-making companies hardest and make calculating their tax rate more complex.
Previously:
- Companies making profit up to £50,000 will have continued to pay 19% corporation tax
- Companies making over £250,000 profit will have had to pay a new increased main rate of 25%
- Companies making profit between £50,000 and £250,000 will have had to pay the 25% rate (but will also be able to claim a ‘marginal rate relief’ which will result in a reduction to a rate between 19-25%)
If you make an R&D tax relief claim then this can also reduce your corporation tax liability.
National Insurance increase has been reversed
On 6 April 2022 the National Insurance (NI) rate increased by 1.25%. The Government has announced that this will be “reversed” on 6 November 2022.
In April:
- Employer’s NI increased from 13.8% to 15.05%
- Employee’s NI increased from 12% to 13.25%
The increase was introduced as a way of funding the Health and Social Care levy which sought to support the NHS after the pandemic. This will now be funded through government borrowing.
A proportion of your National Insurance contributions can be included as part of your staff costs in an R&D tax relief claim.
Dividend rate increase for company directors scrapped
The increase in dividend rates has been scrapped, meaning that company directors who pay themselves through dividends will be better off.
In April this year, dividend rates for self-employed directors had increased by 1.25% to 8.75% for basic rate income tax payers and to 33.75% for higher rate income tax payers.
New investment zones: where are they?
The chancellor has announced that there will be an introduction of around 40 low-tax, low-regulation investment zones.
These zones are likely to be:
- Greater Manchester
- West Midlands
- Thames Estuary
- Tees Valley
- West Yorkshire
- Norfolk
As well as lower taxes for businesses in these zones, there will also be lower personal taxes for employees living or working there (more details to come in the ‘full’ budget later this year). Planning regulations will also be relaxed for companies setting up in these areas.
SEIS increases
From April 2023, companies will be able to raise up to £250,000 under the SEIS scheme, an increase from £150,000.
To allow more companies to use SEIS, the gross asset limit will be increased from £200,000 to £350,000. And the trading age for companies will increase from 2 to 3 years.
Good news for investors too: the annual investor limit will double to £200,000.
Abbie MainOur data shows more than 70% of early-stage rounds go through the SEIS scheme. The Government’s decision to up this total raise amount is therefore pivotal in allowing founders to raise more in challenging times, by de-risking investment opportunities for investors who are increasingly pressed by the market to make risk-averse decisions.
It’s very exciting for early stage fundraising and will hopefully go some way in mitigating the difficulties founders are facing.
Sales Manager, Funding,
No announcement about R&D tax relief schemes
There has been no direct announcement on changes to the R&D schemes. However, the cancellation of the corporation tax rate rise will mean that any claim made under the RDEC Scheme will be more beneficial.
- RDEC claims from April 2023 would have been worth 9.75p for every £1 spent on R&D
- After the increase has been scrapped, RDEC claims will be worth 10.53p for every £1 spend on R&D
Increase in CSOP value
Companies will now be able to offer share option schemes – aka Company Share Option Plans (CSOPs) up to a value of £60,000, an increase on the current value of £30,000.
Mo SaedThis is great news for companies too big to qualify for EMI or that don’t qualify under trade criteria.
Employees and anyone else associated with the company could double their income in a tax efficient way. This in turn should help the already vibrant startup scene attract and retain top talent to continue fostering innovation in the UK.
Sales Manager, Equity,
In summary
Today’s announcements from the Treasury show a change of direction compared to 2021 and will overall seek to benefit businesses of all sizes. Companies won’t have to worry about an increase in their corporation tax and National Insurance liabilities and the increase in thresholds for SEIS will further allow startups to thrive.
At SeedLegals we’re experts in helping businesses to grow and scale. Our services such as SEIS Advance Assurance and share option scheme help startups take full advantage of the support the Treasury offers UK businesses. Get in touch to see how we can help you.
Sources
Gov.uk | Policy paper | The Growth Plan 2022 documents – accessed 23/09/22
Gov.uk | The Growth Plan 2022 speech transcript – accessed 23/09/22
Twitter | HM Treasury – accessed 23/09/22
BBC News | Mini-budget: What it means for you and your finances – accessed 23/09/22
