The Chancellor, Rachel Reeves, has presented her first Autumn Budget to parliament, detailing the government’s plans for delivering economic growth. With a clear focus on giving the business community confidence, stability was very much at the heart of the measures – with no significant changes announced for either the R&D Tax Credits or Capital Allowances schemes.
Below, we summarise the key updates affecting innovative businesses.
Increased employment costs
As part of a series of measures to raise funds for investment, National Insurance Contributions (NIC) by employers will rise from 13.8% to 15%. Furthermore, the threshold for businesses paying National Insurance (NI) on employees’ earnings will be lowered from £9,100 to £5,000, meaning that businesses will have to start paying NI on a larger portion of their employees’ salaries.
In light of higher employment costs, R&D Tax Credits, which can offset a significant portion of R&D-related staffing costs, become even more valuable for innovative businesses.
There was a small caveat for smaller businesses, as the government is increasing the Employment Allowance from £5,000 to £10,500, which will allow many to offset the increased NI costs.
R&D Tax Credit rates to remain the same
The Chancellor pledged that the government will be keeping the current rates of R&D tax relief to drive innovation.
Before Labour came to power in July, they published a plan for growth that aimed for “stable R&D Tax Credits”, saying that they planned to keep the “current structure of R&D Tax Credits over the next parliament, while cracking down on fraudulent claims and those made in error.”
This is, in effect, what has been announced in the 2024 Budget. For the past few months, there’s been a clear narrative from the government on the importance of growing the UK economy, which meant that R&D relief was never in any danger. They’ve emphasised stability, and kept things largely as they were, because the scheme has changed so much in recent years.
In practice, even seasoned businesses that have claimed relief for many years will still be getting to grips with the new Merged R&D Expenditure Credit and Enhanced R&D Intensive Support (ERIS). While more can be done to simplify these schemes and improve access, it’s sensible to allow them to bed in before any more significant changes are announced.
Business certainty for Corporate Tax and Capital Allowances
Keeping the business community happy with stability and “certainty” is a clear priority for the government. As such, Corporation Tax remains at 25% and the full-expensing Capital Allowance as well as the Annual Investment Allowance (AIA) are both being kept.
R&D investment focusing on key tech industries
Driving innovation and growth was repeatedly referenced by the Chancellor, with a £20 billion commitment to R&D.
There were also specific commitments to funding for key industries including nearly £1 billion for aerospace, over £2 billion for the automotive sector (with a focus on supporting the UK’s electric vehicle industry and manufacturing base), and up to £520 million for a new Life Sciences Innovative Manufacturing Fund.
Sustainable technology also received a boost, with plans confirmed for the National Wealth Fund to invest in what the Chancellor called “the industries of the future”, giving gigafactories and green hydrogen as example priorities.
More investment in HMRC
There was a commitment to invest in modernising HMRC systems as well as recruiting additional compliance and debt staff.
This is part of an ongoing effort to reduce errors and fraud in all areas of revenue collection and tax relief (including R&D Tax Credits and Capital Allowances). Additional compliance staff will also hopefully help to improve the quality and consistency of support for R&D relief claimants – an area where HMRC have admitted that they are underperforming.
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