Chancellor Jeremy Hunt announced many R&D tax changes in his Autumn Budget, including how the funding is allocated, which will be implemented in April.

He announced changes to the rates paid by the Research and Development Expenditure Credit (RDEC) for larger firms and the small and medium enterprises (SME) R&D relief scheme.

Under these changes, from 1 April, the RDEC rate will be increased to 20 per cent from 13 per cent.

Meanwhile, the SME deduction rate on qualifying expenditure 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.

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

Overseas R&D

Subcontracted R&D expenditure from outside the UK will no longer be eligible for inclusion in R&D claims from April 2024.

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

Pre-notification

From 1 April 2023, new rules for R&D Tax Relief claims will also require businesses to submit a pre-notification of their claim to HMRC digitally.

This applies if a business:

• is a new claimant; or
• has not claimed in the last three financial periods.

The requirement to pre-notify HMRC will affect any business that conducts research and development if they are eligible to claim under either the R&D Expenditure Credit (RDEC) or the SME R&D relief schemes.

Looking ahead, HM Treasury also launched an eight-week consultation on the design of a single, simplified R&D tax relief scheme earlier this year, merging the existing RDEC and SME R&D relief. If implemented, the new scheme is expected to be in place from 1 April 2024.

Businesses should be planning for the rise in Corporation Tax (CT), which comes into force from 1 April 2023, and sees the top rate of tax rising from 19 per cent to 25 per cent.

The tax applies to all profitable limited companies – both from trading income and from the sale of investments or assets.

The new approach to Corporation Tax

After 1 April, small companies with profits of up to £50,000 will continue to pay CT at 19 per cent thanks to the small profits rate. However, companies with profits of £250,000 and over will pay CT at 25 per cent.

Those companies between this upper and lower threshold will pay CT at the top rate of 25 per cent but benefit from marginal rate relief that reduces their effective rate of tax on a sliding scale depending on their level of profitability.

To calculate this, all profits between £50,001 and £250,000 are effectively taxed at a rate of 26.5 per cent.

As an example, if a company enjoyed profits of £150,000 the first £50,000 would be taxed at 19 per cent and the remaining £100,000 at 26.5 per cent.

As a result, the company would receive a tax bill of £36,000, which means that the actual tax rate that applies is 24 per cent.

Associated Companies for Corporation Tax rules have been newly reintroduced and they will apply from 1 April 2023 in the context of the small companies rate of CT.

It applies to clients who own or control more than one company. Where two or more companies are “associated” with each other, the Corporation Tax limits are divided by the number of companies concerned.

Like all taxes, CT can be complicated and there are a variety of ways to plan for and mitigate these changes with the right professional advice.

Workers across the UK will get a pay rise from April as higher National Minimum Wage (NMW) rates are introduced.

According to the Government, around two million of the UK’s lowest-paid workers will benefit from the rise in the National Living Wage (NLW) and NMW rates.

From April 2023, the NLW will increase by 92 pence per hour, or 9.7 per cent, to £10.42 whilst the NMW rates for younger workers will also increase.

Currently, the National Living Wage applies to those 23 and over, the age having been lowered from 25 in April 2021.

Those aged 21-22 will earn £10.18 an hour, a £1 rise, whilst 18–20-year-olds will receive £7.49 an hour, an increase of 66p.

Apprentices and 16 and 17-year-olds will receive £5.28 an hour, a 47p increase.

These rates are for the National Living Wage (for those aged 23 and over) and the National Minimum Wage (for those of at least school-leaving age).

The new rates are:

The Low Pay Commission estimates that there were two million workers paid at or below the minimum wage in April 2019, around seven per cent of all UK workers.

Penalties for failing to meet statutory wage rates

If an employer is found by HM Revenue & Customs (HMRC) to have failed to pay the minimum wage, the actions that can be taken against them include:

• Requiring payment of the outstanding amount owed, going back up to six years, through the issuance of a notice
• Imposing a fine of no less than £100 per employee or worker affected, and up to £20,000, regardless of the amount of underpayment
• Pursuing legal action, including criminal proceedings
• Providing the names of businesses and employers to the Department for Business, Energy and Industrial Strategy (BEIS), which may choose to list them publicly.

If you are unsure of how these changes affect your workforce and existing employment practices, you should seek professional advice.

Company car drivers will see changes to the amount they can claim back for fuel costs from their employer from 1 March.

HM Revenue & Customs (HMRC) has also confirmed that the way the advisory electricity rate (AER) is calculated has been changed to better reflect energy prices, particularly with soaring electricity costs, when it is reviewed quarterly.

Previously it has been based solely on an annual figure published by the Department for Business, Energy & Industrial Strategy (BEIS), and the electrical energy consumption values for each car model, provided by the Department for Transport (DfT).

Quarterly index

HMRC will continue to use the BEIS and DfT data but will now also incorporate figures published in the Office for National Statistics (ONS) quarterly index for domestic electricity.

The new rates include a 1 pence per mile (ppm) increase in the advisory electricity rate (AER) used to reimburse drivers of electric company cars.

In contrast, and to reflect falling fuel prices, petrol, diesel and LPG advisory fuel rates (AFRs) have been reduced from 1 March.

Rates cut for petrol and diesel

The rates for petrol company cars have all been cut, with the AFR for petrol vehicles up to 1,400cc now 13 ppm.

Vehicles powered by 1,401-2,000cc engines see a decrease of 2 ppm, to 15 ppm. For engines larger than 2,000cc the AFR sees the biggest reduction of 3 ppm, to 23 ppm.

For diesel, cars up to 1,600cc there is a reduction of 1 ppm, to 13 ppm, and engines from 1,601-2,000cc see a reduction of 2 ppm to 15 ppm. The 2,000cc rate is cut by 2 ppm to 20 ppm.

For LPG vehicles up to 1,400cc, the rate remains the same at 10 ppm but has been cut by 1ppm to 11ppm for vehicles with an engine size of 1,401-2,000cc. For engines greater than 2,000cc, there is also a reduction of 1 ppm to 17 ppm.

Hybrid cars are treated as either petrol or diesel cars for AFR purposes.