What does the 2022 Spring Statement mean for R&D tax credits and capital allowances?

The Chancellor’s Spring Statement set out how Research and Development (R&D) tax credits for UK companies will be reformed this year.

Companies that invest money developing or enhancing products, systems and services are eligible for R&D tax relief. The R&D tax credits incentive is a valuable source of cash for businesses to help accelerate development and growth. Eligible companies can receive either a cash payment or corporation tax reduction. Currently, for every £1 spent, companies receive up to 33 pence back. Rishi Sunak’s decision to allow businesses to claim relief on the storage of their vital data and pure maths research, will inevitably boost sectors where the UK is a world-leader, including AI, robotics, manufacturing and design. We look forward to seeing what the Government will decide in the Autumn when they look to make R&D credits more generous. An increase in R&D tax relief would definitely be a great boost for UK innovation.

The Chancellor further acknowledged the role that the capital allowances regime plays in supporting investment in new and more efficient plant equipment and machinery. The capital allowances super-deduction, which gives a 130% tax allowance for investment in new plant equipment and machinery, was introduced in the 2021 Spring Statement on 3 March 2021. It was effective for expenditure incurred from 1 April 2021 but is due to expire on 31 March 2023, just as the Corporation Tax rate increases to 25% on 1 April 2023. 

In the 2022 Spring Statement, the Chancellor announced a consultation on reform of the existing capital allowances regime, the results of which will likely be published in the Autumn. It will consider options such as increasing the rates that capital allowances are currently given at, increasing the Annual Investment Allowance permanently and, potentially, even giving full permanent expensing for investment in plant and machinery. This final option is unlikely to be adopted due to the enormous cost to the Exchequer but it’s clear that capital allowances will be a central tool to encourage investment in the future landscape of higher corporation tax rates.