Corporation Tax Rate Changes and The Impact on Your R&D Claim 2022-05-30T10:55:39+01:00

The Chancellor announced his plan to increase the Corporation Tax (CT) rate effective from 1st April 2023. Currently there is a flat rate of 19% and this will rise to 25% in the coming year.

The Government are also reintroducing the small profits rate of tax to help smaller businesses and as a result, the 19% rate will continue to apply to companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.

How will the rate increase impact R&D tax relief claims?

Whilst there is no change to the rate of R&D tax relief itself, the proposed increase will impact the value of future R&D claims.

The SME R&D scheme allows for an additional 130% deduction of qualifying costs, and a company with taxable profits exceeding £250,000 could see the value of their claim has increased. With the example below, if the Company had carried the losses forward, this would generate a tax saving of 25% against future profits as opposed to the current 19%.

Example: A Company with profits of £300,000 and £400,000 of qualifying R&D costs.  

 25% CT Rate19% CT Rate
Profits chargeable to Corporation Tax before R&D300,000300,000
130% Deduction (400,000 * 130%)(520,000)(520,000)
Revised Loss for the year(220,000)(220,000)
Surrendered for R&D tax credits (220,000 * 14.5%)31,90031,900
Corporation Tax Liability pre-R&D reduced to nil75,00057,000

With the RDEC R&D scheme being a taxable credit, there may be an adverse effect for claims where the potential benefit is reduced with the increased tax rate. In the example below, the current 19% rate would generate a tax saving of £21,000 as opposed to £19,500 with the new changes.

Example: A Company with profits of £400,000 and £200,000 of qualifying R&D costs.  

 25% CT Rate19% CT Rate
Profits chargeable to Corporation Tax before R&D400,000400,000
RDEC Adjustment (200,000 * 13%)26,00026,000
Revised Profit for the year426,000426,000
Tax Charge @ 25/ 19%106,50080,940
RDEC credit(26,000)(26,000)
Corporation Tax Payable80,50054,940
Corporation Tax Liability pre RDEC claim 100,00076,000
Corporation Tax Liability post RDEC claim80,50054,940
Benefit of RDEC claim19,50021,060

Average R&D tax claim is £56,000

Ask us to review your R&D tax relief claim on your behalf. With our unique fee strcuture you don't pay us a penny until your R&D claim succeeds and provides a benefit to your business!

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