R&D tax credit changes 2023 and the effects on businesses

Date: January 16, 2023

For the most up-to-date R&D tax credit changes, visit our August 2023 R&D tax credit changes article.

R&D tax credits (also known as Research and Development tax credits or R&D relief) changed on 1 April 2023, with further updates on 8 August 2023, including the Additional Information Form requirements.

The changes have affected companies that undertake research and development who claim R&D expenditure credit (RDEC). This is as well as R&D tax credit for SME sized companies. Obviously, it also affected any companies that have considered a claim.

Expenditure on certain overseas R&D activities was excluded, with this change taking effect on 1 April 2024. 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 1 April 2023 increased the rate of tax credit available for companies undertaking qualifying R&D and claiming 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 previous general rate was set at 13% of the qualifying R&D expenditure. The changes being introduced on 1 April 2023 increased this rate from to 20%, which is obviously a significant increase and will benefit all companies claiming this relief.

Also announced at Budget 2023 was a new, enhanced rate for Research & Development intense businesses. There were also some other changes that were delayed until August 2023. Find out more by reading our full R&D tax credit changes guide.

Contact our R&D tax credits team today to find out more about the benefits of the changes.

Will any companies be worse off by these Research & Development tax credit changes?

The changes reduce the rates of R&D tax credit 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 to avoid R&D tax credit restrictions.

Are R&D tax credit claims becoming more complex for businesses?

Since 8 August 2023, R&D claims now need to be more comprehensive and accompanied with written reports. This change was delayed from 1 April 2023. Narrative must include clear evidence of a company’s technological or scientific advancements. It must also document the uncertainties faced or how these have been overcome through the research.

Alexander & Co already include all this information as standard in our comprehensive R&D reports, which we prepare on behalf of clients. This change was welcomed, as it has so far helped 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, so it will not impact the way we do things and we can help your business with no problems.

The requirement to notify HMRC of R&D tax credit claims in advance

Advance notification of Research & Development tax credit claims is potentially one of the most significant changes introduced from 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 that occurred within the previous two accounting years.

These changes to R&D tax credits mean that it is vital to consider any potential R&D tax credit claims as soon as possible.

Get in touch with us today to discuss if you can claim, or if you are unsure about any of the information. We are happy to help you and check your eligibility.

What actions do companies need to take now?

After the April and August 2023 changes to Research & Development tax credit, there is now a wider scope to claim. This is due to the ability to now submit any previous two year claims. This is as well as claims involving cloud, data and pure mathematics costs. We recommend businesses take action now and contact us as soon as possible to take advantage of this, or if they need assistance with any of the latest changes.

If they haven’t already, companies should begin keeping detailed records of all projects. This is incase they qualify for R&D tax credit 2023. 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.

Contact our R&D tax credits team today.

Alexander & Co – comprehensive expert R&D tax credit advice

Alexander & Co provide complementary R&D tax credit consultations. We 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.

Contact us today for more information on how Research & Development tax credit changes could affect your business and how we can help. Our fees are some of the most competitive in the industry and are always contingent on a claim being successful.