Ongoing changes to R&D tax relief – some key action points to consider

May 2023

If you are responsible for claiming the R&D tax relief in your company, then please read on to check that you are up to date with all the changes happening currently.

Rate changes from 1 April 2023

• SME enhanced deduction reduced to 86% from 130% and credit from 14.5% to 10%, (albeit that some SME’s with R&D costs >40% of total costs may still be able to claim 14.5%)
• R&D Expenditure Credit (“RDEC”) rate increased from 13% to 20%

Ensure your cash flow and other forecasts reflect the new rates.

More HMRC enquiries

HMRC have increased their scrutiny of R&D tax relief claims and have recruited many dedicated case workers. The quantity and quality of the enquiries raised has caused concern amongst companies and within the professional community. HMRC themselves stated that they recognised the issues facing the taxpayer and that the training of their team is ‘ongoing.’

Getting an enquiry letter has proved challenging for legitimate claimants, as this can delay payment of tax relief whilst responses are given. Make sure your claim follows best practice in the first instance.

On its way…

For accounting periods beginning on or after 1 April 2023

Widening of scope as to what qualifies for R&D tax relief.

• If you pay for data or cloud computing services, you can now include these amounts in your R&D tax relief claim.
• Pure mathematical research is now considered to be an area that qualifies for R&D tax relief.

Make sure that you are capturing all the costs for which you are now eligible.

Advance Notification required for R&D tax relief claims

A company must now tell HMRC that it plans to make a claim for R&D by submitting an online claim notification form.

It must do this by 6 months after the end of the period of account that the claim relates to if:

• It is claiming for the first time
• It has claimed in the prior year, but the claim was submitted more than 6 months after the end of the prior period
• The last claim was made more than 3 years before.

Don’t miss out on an R&D tax relief claim because the Advance Notification has not been made.

From 1 August 2023

Compulsory online forms:

All R&D claims from this date will need to submit an online mandatory form to have a valid R&D tax relief claim. There is lots of additional information, including a named senior officer of the company and name of agent who has helped prepare the claim on your behalf.

Make sure you are capturing the right data, and if necessary, get any ongoing claims in before 1 August 2023.

Into the future…

For accounting periods beginning on or after 1 April 2024

Restrictions for non – UK outsourced activities (delayed from 2023):

If you subcontract or use overseas workers these costs will be excluded from the claim unless it can be shown that the work cannot be carried out in the UK.

HMRC are still working on the practical details so watch this space.

Although it has been delayed by a year, this rule will be enforced so consider the impact of this now and plan for any changes you may wish to make..

From 2025..

A unified R&D tax relief scheme?

HMRC will make further announcements following on from a consultation which closed in March 2023.

If you require any further information, then please get in touch with your usual James Cowper Kreston or contact one of our R&D tax relief specialists here.