As of 1 April 2023

Changes to the R & D Expenditure Credit rate

As part of the Autumn Statement in November 2022, the Government announced changes to the rates of R&D tax relief. These affect current claimants of R&D tax relief under both the SME and R&D expenditure credit (RDEC) regimes and apply to expenditure incurred on or after 1 April 2023.

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, This measure also reduces the rates in the R&D tax relief for SMEs. The SME additional deduction rate will be reduced from 130% to 86%, and the rate of the SME payable credit rate which can be claimed for surrenderable losses will be decreased from 14.5% to 10%.

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Changes to qualifying subcontractor labour

One of the most fundamental changes in the Autumn Budget was to refocus the relief provided to activities performed in the UK. As such, subcontracted R&D work and the cost of externally provided workers (EPWs) will be limited to work undertaken in the UK. The new rules expand the categories of qualifying expenditure to include data licences and cloud computing to better reflect developments in technology and the different ways that cutting edge research and development is now undertaken.

Budget 2018

Preventing abuse of the R&D tax relief for SMEs


  • To help prevent abuse of the research and development (R&D) SME tax relief by artificial corporate structures, the amount that a loss-making company can receive in R&D tax credits will be capped at three times its total Pay As You Earn (PAYE) and National Insurance contributions (NICs) liability.
  • HMRC has identified and prevented £300 million of fraud linked to this relief and this change will help to address similar abuses in future.


  1. The R&D tax reliefs, including the SME relief, are designed to encourage innovation. Their success is shown by a recent HMRC stud which found that for every £1 of tax forgone £1.53 to £2.35 of R&D is stimulated.


  1. £1.8 billion of support has been claimed so far for 2016-2017, up from £350 million in 2010. This supports the government’s aim of seeing UK spending on R&D reach 2.4% of GDP by 2027.


Why is a change needed?


  1. While R&D tax reliefs are effective, HMRC has identified (and prevented) fraud attempts on the SME payable tax credit, worth £300 million in total. In these cases, companies were set up to claim the cash available through the payable credit even though they have no legitimate R&D activity. HMRC also identified structures set up deliberately to claim the payable tax credit despite having no or little employment or activity in the UK.


  1. From April 2020, the amount of payable credit that a qualifying loss-making business can receive through the relief in any one year will be capped. The cap will be three times the company’s total PAYE and NICs liability for that year.


  1. This will deter abuse because fraudulent companies typically do not employ many people or pay PAYE and NICs. The cap will therefore ensure that the relief goes to companies that have a real UK presence.


  1. Close to 95% of companies currently claiming the payable credit will be unaffected.


  1. Nevertheless, the government recognises that some genuine companies with UK R&D activity may have low PAYE and NICs liability relative to R&D spend and therefore could be affected by this measure, despite the cap being set at three times their liability.


  1. In these cases, the companies will still be able to claim payable credit up to the cap with any unused losses carried forward to be set against future profits. The government will also consult on how the cap will be applied, to minimise any impact on genuine UK businesses.


Policy paper

Corporation Tax: increasing the rate of Research and Development expenditure credit

Published 22 November 2017

Who is likely to be affected

This change will affect companies that carry out Research and Development (R&D) and claim Research and Development Expenditure Credit (RDEC).

General description of the measure

This measure increases the tax relief for large companies (and small and medium sized enterprises in some cases) that carry out qualifying R&D and claim the RDEC.

The RDEC (also known as the ‘Above the Line’ credit) is a standalone credit that is brought into account as a receipt in calculating profits. The current general rate is set as 11% of qualifying R&D expenditure. This measure increases the rate of the RDEC from 11% to 12%.

Policy objective

Increasing the amount of R&D carried out by companies is a key part of the government’s aim to increase productivity and promote growth.

R&D tax credits support business investment by allowing companies to claim an enhanced Corporation Tax deduction or payable credit on their R&D costs.

A rate increase of the RDEC from 11% to 12%, means that large companies can claim more support for their R&D, increasing the incentive to undertake R&D.

Background to the measure

This measure was announced at Autumn Budget 2017.

Detailed proposal

Operative date

The increase in the RDEC rate will have effect for expenditure incurred on or after
1 January 2018.

Current law

Current law on the RDEC is contained in chapter 6A of part 3 of Corporation Tax Act 2009 (CTA 2009).

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 amending section 104M of CTA 2009.

Summary of impacts

Exchequer impact (£m)


2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023
-5 -60 -170 -175 -170 -175

These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

The costing accounts for a behavioural response of businesses increasing investment in R&D, however, the measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only affects businesses.

There is no impact on family formation, stability or breakdown.

Equalities impacts

This measure increases the tax relief to qualifying companies. After careful consideration, the government has concluded that there are no significant impacts on groups of people sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a positive impact on 4,000 businesses claiming RDEC. Increasing the rate will support business investment as companies can now claim more support for their R&D.

This measure is expected to have a negligible impact on businesses administrative burdens. Negligible one-off costs include updating their systems to reflect the increased rate. There will also be a negligible cost where some companies make claims for R&D activity where they have not previously done so or where companies begin R&D work where they have not done previously. It is not expected there will be any ongoing costs. There are no impacts on civil society organisations.

Operational impact (£m) (HMRC or other)

There will be no significant operational impact.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups. We will monitor this measure through information collected from tax returns.

Further advice


If you have any questions about this change, please contact us on 01858 445522 or