What the Autumn Statement Means for Startups & SMEs
Autumn Budget 2022: What startup founders need to know
As the UK heads into recession the Chancellor, Jeremy Hunt, had a real balancing act to perform in the Autumn statement. The announcements made on 17 November 2022 will affect many different sectors. In this week’s newsletter, our Head of Tax Misha Patel focuses on the key implications of the Autumn statement for founders of startups and owner operators of SMEs.
I. Rebalancing of R&D from April 2023
In recent years HMRC have seen many fraudulent claims being submitted for R&D Tax Relief and therefore it comes as no surprise that HMRC have acted against this by reducing the relief for SMEs substantially. The relief aimed at large businesses, R&D Expenditure Credits (RDEC), will become more generous whilst the relief aimed at Small and Medium Enterprises (SMEs) is reducing.
Instead of regulating the space and addressing the real reason for the abuse, they have announced that the deduction rate for SME’s will be reduced from 130% to 86% and the credit rate will be cut to 10% from 14.5%.
One of the most important changes to be aware of is that for accounting periods beginning on or after 1 April 2023, any new companies which are looking to claim R&D or companies which have not made a claim in the previous 3 years will need to notify HMRC within six months of the relevant year end of their intention to submit a claim. If this deadline is missed, then a claim will not be accepted.
Below we have given some examples of how these changes might impact an R&D Claim:
Position for a Loss-Making Company (SME)
Pre-April 2023 Claim on £100,000 of R&D expenditure:
£100,000 additional rate uplift at 130% = £130,000
Maximum tax credit claim = (£130,000 + £100,000) * 14.5% = £33,350
Post April 2023 Claim on £100,000 of R&D expenditure:
£100,000 additional rate uplift at 86% = £86,000
Maximum tax credit claim = (£86,000 + £100,000) * 10% = £18,600
Therefore there is a difference of £14,750 which represents a 44% decrease in R&D tax credit. With the above changes and the impact, it will have on R&D; it is now more important that loss making companies think about carrying their loss forward if they anticipate making a profit.
Position for a Profit-Making Company
Pre-April 2023 – Claim on £100,000 of R&D expenditure:
£100,000 additional rate uplift at 130% = £130,000
Corporation tax reduction at 19% = 24,700
Post April 2023– Claim on £100,000 of R&D expenditure:
£100,000 additional rate uplift at 86% = £86,000
Corporation tax reduction at 25% = 21,500
Difference of £3,200 which represents a 13% decrease in R&D tax credit.
II. Capital Gains Tax Annual Allowance Cut
From April 2023 the annual exemption which is currently 12,300 will be cut to £6,000 and then a further fall to £3,000 from April 2024 making the disposal of assets a less attractive options.
III. National Insurance Contributions
The class 1 secondary NICs will be fixed at £9,100 from April 2023 to April 2028.
IV. Income Tax Thresholds
The personal allowance will be frozen at £12,570 and the threshold for the higher rate of tax will also be frozen at £50,270 until April 2023.
However, the additional rate threshold which will be lowered from £150,000 to £125,140 bringing more individuals into the 45% tax bracket.
V. Dividend Allowance
Currently there is an allowance of £2000 tax free however this will be lowered in April 2023 to £1,000 and then a further reduction to £500 from April 2024.
The majority of these changes come into effect from 6 April 2023. However, at Dragon Argent, we can help structure your position to maximise the tax reliefs before and after April 2023. Schedule a 30 minute discovery call with Misha Patel, our Head of Tax today.
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