Reforms to Research and Development (R&D) Tax Reliefs
Autumn Statement 2022
In the Autumn Statement delivered in November 2022, the government announced significant reforms to the UK’s R&D tax relief schemes. These changes represent the most substantial shift in R&D tax policy in over a decade and will have a material impact on many businesses, particularly SMEs and loss‑making companies.
The announced reforms apply to expenditure incurred on or after 1 April 2023 and form part of a broader policy objective to rebalance support, reduce abuse of the scheme, and move towards a simplified, single R&D tax relief system.
Key Changes Announced
For qualifying R&D expenditure incurred from 1 April 2023 onwards, the government announced the following headline changes:
The Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
The SME additional deduction will decrease from 130% to 86%
The SME payable tax credit rate will reduce from 14.5% to 10%
These rate changes are intended to be enacted through the Autumn Finance Bill 2022.
While the increase in the RDEC rate improves the attractiveness of the large company scheme, the reduction in SME relief represents a significant decrease in support for smaller businesses, especially those operating at a loss.
Impact on SMEs
The reforms will disproportionately affect SMEs, particularly loss‑making companies that rely on the repayable SME credit as a source of cash flow.
In many cases, the combined reduction in the SME additional deduction and the payable credit rate equates to a benefit reduction of up to 45% compared to claims made under the existing regime.
This represents a substantial shift in government support away from the SME scheme and has raised concern across innovation‑led sectors.
A Step Towards a Single R&D Scheme
The government has stated that the reforms are part of a longer‑term objective to move towards a single, simplified, RDEC‑like scheme for all companies, regardless of size.
As part of this process:
The government has committed to consulting on the design of a unified scheme
Further engagement with industry is expected ahead of future Budgets
Consideration will be given to whether additional support is required for R&D‑intensive SMEs, without increasing the overall cost of R&D support
At this stage, no firm commitments have been made regarding transitional measures or additional relief beyond the announced changes.
Other R&D Reforms Already in Motion
The Autumn Statement builds on reforms first announced at the Autumn Budget 2021, including:
Expansion of qualifying expenditure to include data and cloud computing costs
A renewed focus on encouraging UK‑based innovation
Measures aimed at targeting abuse and improving compliance
These changes are expected to be legislated through the Spring Finance Bill 2023.
Increased Focus on Compliance and Abuse
Alongside the financial reforms, the government’s announcement again highlighted concerns around the rise in fraudulent and non‑compliant R&D tax claims.
The increased compliance activity HMRC has already begun aligns closely with these reforms, signalling a stricter enforcement environment going forward.
As relief rates reduce — particularly under the SME scheme — HMRC scrutiny is expected to increase, making the quality, accuracy and defensibility of claims more important than ever.
What Businesses Should Be Considering Now
In light of the announced reforms, businesses should be:
Reviewing how future R&D claims will be impacted from April 2023
Assessing cashflow assumptions that rely on R&D tax relief
Ensuring their R&D activities, cost allocations and documentation are robust and compliant
Seeking expert advice before submitting claims under the new regime
Incorrect or inflated claims carry an increased risk in the current climate, with both financial and reputational consequences.
Summary
The Autumn Statement 2022 marks a clear turning point in the UK R&D tax relief landscape. While support for innovation remains a stated government priority, the balance of that support is shifting — away from the SME scheme and towards a more uniform, compliance‑driven approach.
Understanding how these changes apply to your business, both now and after April 2023, is essential.
