The recent announcement by the government to reduce R&D tax credits from April 2023 will have implications for agri-tech innovation. We asked Agri-TechE members and tax experts MMP to provide the context for this announcement.
In this guest post, Alexis Marz, Director and Co-Founder of MMP Tax limited explains the implications:-
Chancellor of the Exchequer, Jeremy Hunt delivered his first budget in November and announced a number of changes that will have a significant impact on the AgriTech industry from April 2023 and beyond.
As expected, the main rate of Corporation tax is increasing to 25% coupled with a major shakeup of R&D tax incentives. The nature of the reform to the incentives, announced by the Chancellor, is mixed, with positive news for larger companies but it is less so for SMEs.
Reducing the generosity of R&D tax credits
Following a high-profile exposé by The Times recently, revealing the extent of mis-use of the SME R&D Tax Credit, a crackdown on fraudulent or ineligible claims was on the cards.
However, the Government merely introduced a scheme-wide reduction in the generosity level from the current 33.35% rate to 18.6%.
While this may make the scheme less appealing to nefarious parties, the broader effect will see all genuinely innovative SMEs punished as well.
Some of the nation’s most innovative AgriTech companies are small, loss-making businesses who rely on the R&D tax credit to take risks in developing the innovations that go on to enhance farming practices both here in the UK and further afield.
As of 1 April 2023, however, for every £100,000 these businesses spend on eligible R&D, they will receive only £18,600, rather than the previously entitled £33,350.
Increasing corporation tax
The impact will reverberate to small, profit making companies as well. The new, lower R&D tax percentage means their Tax Relief will also be reduced but the increasing tax rates mean it will be even more important to claim. The exact benefit companies receive will depend on their profitability and how the government decides to implement the marginal tax rate. Overall the benefit will be lower, reducing from the previous 24.7% to anything from 21.5% to 16% depending on the company’s situation.
A missed opportunity for reform
A real opportunity for the Government to actively target fraud and, more alarmingly, the large scale abuse of the scheme, has regretfully been missed. Smarter thinking could have brought much needed reform to root out unscrupulous entities while maintaining, or even increasing support for companies involved in genuine R&D.
For large innovative businesses, the picture is thankfully far rosier. The Research and Development Expenditure Credit (RDEC) scheme rate will increase from 13% of eligible spend to 20% of eligible spend, this is almost a 50% increase in net benefit for companies. This will help the Government’s drive to reach its target of 2.4% of GDP on innovation spending.
If you’re a small AgriTech business, looking at other ways to lower your tax burden and obtain funding for your R&D has become more important. Fortunately, the government is looking to increase the amount of money available for grant funding. In addition, the Patent Box will be more impactful, so it is worthwhile considering how your business could benefit in the future.
Advice from MMP Tax
If you have any questions on how the Autumn Statement will impact your business or planned claims for R&D Tax Credits, please do not hesitate to get in touch with MMP Tax and one of our team will be ready and willing to assist.
