Luke Prout, corporate tax partner at Streets Chartered Accountants, offers a summary of the changes to Research and Development Tax Credits in the Autumn Statement. The Autumn Statement included a number of changes to Research and Development Tax Credits, and in particular a significant scaling down for Small and Medium Sized Enterprises (SMEs) of the generous reliefs available for undertaking qualifying Research and Development (R&D). Whilst R&D by larger companies has been significantly enhanced by the tax credits, the scheme’s application by SMEs has deemed to be less than effective or satisfactory, with in many cases it being misused, even abused, by those it seeks to support. As a result the Chancellor has reduced the level of relief available to SMEs for undertaking R&D. The scaling down of the reliefs was perhaps to be expected based on the projection that without reform the cost of providing the relief could double to almost £9bn by 2027 and that such a financial commitment could perhaps not be supported or justified at a time when the Chancellor is seeking to address a £55bn black hole. It is also the case that earlier this year, Prime Minister Rishi Sunak promised reforms when he was Chancellor, saying that in spite of spending “huge and rapidly growing sums” on the scheme it was not doing enough to boost growth. In part this may have a large impact for smaller businesses, to allow them to receive cash funding for undertaking R&D. In contrast the separate R&D tax relief scheme for large companies was actually enhanced in the Autumn statement to provide larger companies increased benefits. Perhaps this is the starting point for the two schemes to eventually be merged into a combined singular scheme, which means we probably have not seen the end of these changes and there may well be amendments in next year’s Budget and/or Autumn statement. Summary of changes SME Scheme From April 2023, businesses classed as an SME will no longer receive an uplift of 130% for every £1 spent, instead this will reduce to 86% and for loss making companies that can sell (surrender) their losses to HMRC, the repayable credit will be reduced from 14.5% to 10%. However, bear in mind, that the Corporation tax rate from April 2023 changes from 19% to 25%, so it would be expected that the repayable tax credit would be reduced based on previous changes in the rate of Corporation tax (albeit it has never been consistent). For profit making SMEs this is a reduction of 11% and for loss making SMEs this is a reduction of around 15%. Large Scheme This is aimed at large companies, groups and certain SMEs that receive grants or are subcontracted to carry out R&D. The calculation is slightly different, and in general, there is a 4-5% increase in the benefit for large companies, and one would expect this to be increased further next year to eventually align the two schemes. What should businesses be considering now? If you are an SME facing a reduction in the level of R&D tax relief you will be able to receive post 6^th April you may want to consider making a claim before March 31^st 2023. If you are classed as a large company and undertaking qualifying R&D you may want to defer submitting a claim until the start of the new financial year in April 2023 so ensuring you optimize the value of the relief received. If you want advice and guidance about either your eligibility for making a claim and/or assistance in preparing and submitting a claim, we strongly advise you to contact a tax specialist who is experienced in R&D reliefs such as a corporate tax partner at a firm like Streets Chartered Accountants. See this article in the December edition of East Midlands Business Link Magazine here.

It’s that time of year, when Business Link Magazine invites the region’s business leaders to offer up their predictions for the year ahead.  It has become something of a tradition, given that we’ve been doing this now for over 30 years. Here we speak to Reshma Sheikh, chairperson at Octavian Security UK. My key concerns (like many others) for the UK economy next year are: rising inflation, high interest rates and the threat of global recession. Like many other sectors, the security industry is also dealing with a post-Brexit recruitment crisis. According to latest research more than 20,000 officers have been lost due to retirement and departures following Brexit and Covid-19. The British Security Industry Association reports the security industry will need to recruit, train and license more than 62,000 new security officers in the next 12 months to meet the growing demand for security services. That said, I’m hopeful that the industry will survive these challenging times. Security services are sometimes considered a necessary evil, required by insurance companies. However, the risks posed have increased due to opportunists, as well as sophisticated networks of criminals gangs targeting assets on sites and high value personal goods. We have seen a growing demand for our services. The need to keep assets and people safe has grown. I believe that, in 2023, the industry will evolve and the historic perception of security guards will change. There will also be greater diversity – which can only be welcomed.

A businessman from Leicester has been found guilty of selling fraudulent franchise licences to victims across the UK, following a four-day trial at Leicester Crown Court. Nazir Abdul Rashid Daud, 58, formerly of Landseer Road, Leicester, entered pleas of not guilty but failed to attend his trial. He was charged with three counts under the Fraud Act 2006 in relation to false representations made between 2015 and 2018 and a further charge of fraudulent trading under the Companies Act 2006, and was found guilty in his absence. The prosecution was brought following an investigation by Leicestershire County Council Trading Standards Service, which received statements from 18 victims. The court heard that Daud was the sole director of Payrolls Direct Limited, which he set up in 2014. Daud had advertised franchise licences for a new cloud-based payrolls system, which he was selling for between £5,995 and £9,995. Franchisees would sign up clients, process payroll for each employee of the company they signed up, and Payrolls Direct would take 20 per cent of the fee, with the franchisee keeping the rest. Daud claimed that buying a franchise licence would allow people to earn between £250 and £2,000 per month, depending on how much time they put into the business and how many clients they signed up. Advertising for Payrolls Direct also promised franchisees initial training, ongoing unlimited support, marketing materials and networking opportunities with successful franchisees. But the court heard that statements from 18 franchisees who spoke to Trading Standards during the investigation revealed that only one was able to sign up any clients, and as the promised unlimited help, support and training was never provided, the franchisees were unable to use the payrolls system, leading to the contract with the clients being terminated. Co-defendant Anthony Raybould, 65, of Alumhurst Road, Bournemouth, pleaded guilty to fraud by false representation under the Fraud Act 2006 and fraudulent trading under the Companies Act 2006. The court heard that Raybould was the first franchisee licence holder, although he soon became a salesperson for Payrolls Direct, encouraging people to buy franchise licences. He pleaded guilty to charges of fraud by false representation for receiving commission for every franchisee who bought a licence. Victims said he made false representations to them that he had many clients, was earning more than £2,000 per month on a part-time basis and was retiring to Spain – despite not earning anything himself from the franchise. The court heard how Raybould earned in excess of £10,000 in ‘commission’ payments. It is also believed that Daud earned in excess of £300,000 in franchise licence fees. Detailed in victims’ personal statements, the court was told how many had taken loans out to pay for the initial franchise fee or used life savings, had fallen into debt, given up their own current employment and the ordeal had severely affected their mental health, wellbeing, and personal relationships. The court was told that Reybould was of previous good character and therefore a suspended sentence was imposed. As Daud has not yet been sentenced, no mitigation was made on his behalf. His Honour Judge Mooncey sentenced Raybould to 24 months in custody, reduced to 22 months for the late guilty plea, with the sentence suspended for two years. The judge was unable to technically sentence Daud in his absence from court, but issued a warrant for his arrest. An order was also made under the Proceeds of Crime Act, and a timetable set for confiscation proceedings to recover any criminal benefit obtained by Daud and Raybould. Gary Connors, head of Leicestershire County Council Trading Standards Service, said: “This form of fraud provides a quick financial return for the perpetrators, leaving the victims in financial and emotional turmoil. “We expect the cost of living crisis will provide greater openings for franchise fraudsters as people look for more openings to bring in much needed income. “The franchise industry is unregulated as a sector, and I would advise those seeking a new business opportunity to treat every success or income claim as totally unsubstantiated; if the seller cannot produce meaningful audited financial accounts of that success, move on. “For Leicestershire Trading Standards Service, such investigations are resource intensive but necessary to protect consumers and legitimate businesses.”

It’s that time of year, when Business Link Magazine invites the region’s business leaders to offer up their predictions for the year ahead.  It has become something of a tradition, given that we’ve been doing this now for over 30 years. Here we speak to Andrew Mair, partner and head of BDO LLP in the East Midlands. There’s little doubt that trading conditions for East Midlands businesses are extremely challenging and come after a sustained period of pressure which is set to continue into 2023. However, the region is a resilient marketplace and, despite considerable economic headwinds, East Midlands businesses have performed ahead of expectations. According to our latest Rethinking the Economy survey of 500 mid-market businesses, 73% of regional companies are ahead of where they expected to be. And an overwhelming 83% of businesses are significantly more optimistic about their business prospects going into 2023, compared to this time last year. While it’s reassuring to see business confidence at a high level, it should be tempered with some caution in light of the recessionary pressures. Issues, such as the rising price of materials and products, together with rising energy prices continue to drive inflation and remain a real cause for concern for regional businesses. These issues, together with supply chain challenges and the availability and cost of recruiting and retaining the right people, are adding to the general cost of doing business and placing immeasurable pressure on companies. The combination of all of these factors are forcing many to think creatively about how they can drive growth in 2023 against a challenging economic backdrop. According to our Rethinking the Economy survey, more than a third of East Midlands businesses will be investing in ESG in 2023 in a bid to attract more customers, responding to the increasing interest from employees and reinvesting savings from reducing the business’s carbon footprint. In addition, 30% intend to increase investment in online and digital, while nearly a quarter plan to invest in hiring new talent. There is a considerable amount of uncertainty heading into 2023, but one thing is certain – a large portion of East Midlands businesses are well positioned and primed to ride out the economic pressures.