R&D tax credits – important changes affecting claims from April 2023
R&D Tax credits (also known as Research and Development Tax credits or R&D relief) are changing from 1 April 2023.
The change will affect companies undertaking Research and development who claim R&D expenditure credit (RDEC) as well as Research and Development tax relief for SME sized companies. Obviously, it will also affect any companies considering a claim.
In 2021, the Government announced a series of reforms to R&D tax reliefs. The aim of these was to ensure that the UK remains a competitive place for cutting edge research, whilst making sure these reliefs continue to be fit for purpose.
These included adding pure mathematics research to the scope of R&D reliefs, as well allowing data and cloud computing as qualifying costs. Expenditure on certain overseas R&D activities was excluded (this change is now to take effect from 01/04/2024) and a suite of measures were also introduced to focus on R&D abuse and to improve compliance with the regulations.
Which businesses will benefit from the changes to R&D tax credits?
The changes from April 2023 increase the rate of tax credit available for companies undertaking qualifying R&D and claim RDEC. Largely aimed at larger companies, RDEC can also be claimed by SMEs in certain circumstances.
RDEC is a separate credit, brought into account as a taxable receipt when calculating trading profits. The existing general rate (as on January 2023) is set at 13% of the qualifying R&D expenditure. The changes being introduced in April 2023 increases this rate from to 20%, which is obviously a significant increase and will benefit all companies claiming this relief.
Announced at Budget 2023 was a new, enhanced rate for R& D intense businesses. more information on this can be found in our article here
Will any companies be worse off by these changes?
The changes reduce the rates of R&D tax relief available for SMEs, reducing the SME additional deduction rate from 130% to 86%. Furthermore, the rate of the SME payable credit rate which can be claimed for surrenderable losses is to be decreased to 10% (from 14.5%). This is still a substantial amount and any SMEs not already claiming R&D tax credit, should check their eligibility.
Are R&D claims becoming more complex?
From 1 April 2023, R&D claims will need to be more comprehensive and they will need to be accompanied with written reports. Narrative must include clear evidence of a company’s technological or scientific advancements and it must document the uncertainties faced or how these have been overcome through the research.
This Additional Information Form is due from 1 April 2023 where accounting periods began on or after 1 April 2023. The Chancellor announced at Budget 2023 that this will now be required for all claims made on or after 1 August 2023.
Alexander & Co already include all this information as standard in our comprehensive R&D reports which we prepare on behalf of clients, so this change is welcomed as it will help reduce the number of unscrupulous or questionable claims.
As part of the changes, paper returns will no longer be accepted by HMRC. All claims are to be made digitally using compatible software. We are already digitally compliant and filing R&D claims in this way.
The requirement to notify HMRC of R&D claims in advance
Advance notification of R&D claims is potentially one of the most significant changes being introduced from 1 April 2023.
Any company that has never submitted a claim will be required to inform HMRC if they are considering a claim within six months from the end of the accounting period on which the claim relates. Companies that have made a claim (whether successful or not) in the previous three accounting periods will not be required to notify HMRC in advance.
Where a company has not previously made a claim in the previous three accounting periods, they will not be able to include R&D expenditure occurred within the previous two accounting years.
These changes mean that it is vital to consider any potential R&D claims as soon as possible, and if you are unsure at all, to contact us to discuss if you can claim. We are happy to check your eligibility.
What actions do companies need to take now?
Before the 1 April changes, there is wider scope to claim R&D tax credits. As this is a short window of time, we recommend businesses take action now and contact us as soon as possible if they need assistance. This included the ability to submit any previous two year claims as well as claims involving overseas subcontractor work.
If they haven’t already, companies should begin keeping detailed records of all projects, in case they qualify for R&D. Firms should also consider if HMRC should be notified of any existing projects. Moving forward, you should consider when an advanced notification is required. If in doubt, it is always worth notifying HMRC, even if it doesn’t result in a future R&D claim.
Please get in touch with us to discuss any of the above.
Alexander & Co – comprehensive expert R&D advice from chartered tax advisors
Alexander & Co provide complementary R&D consultations and only charge clients for our work if HMRC accepts a claim and repayment/reduction in your liability is made. The claim will be prepared by a Chartered Tax Advisor. The claim should only take two to three hours of your time – we do all the work for you.
For more information, please email firstname.lastname@example.org or call our offices on either 0161 832 4841 or 0207 167 7220, Our fees are some of the most competitive in the industry and are always contingent on a claim being successful.
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