Research & Development (R&D) tax relief changes

 

In the Autumn Statement, the government announced that the rates of R&D tax relief available on costs incurred from 1 April 2023 onwards would be as follows: 

 

- SME additional deduction rate will reduce from 130% to 86% 

- SME payable credit rate will decrease from 14.5% to 10% unless intensive business with 40% or above R&D expenses. 

 

- RDEC R&D Rate will increase from 13% to 20% 

 

SME Loss Making Company – Costs plus 86% uplift = 186 x 10% repayable credit, meaning 18.6% subsidy 

SME Loss Making Intensive Company – Costs plus 86% uplift = 186 x 14.5% repayable credit, meaning 26.97% subsidy. 

 

Loss-making R&D intensive companies are those whose qualifying R&D expenditure constitutes at least 40% of total expenditure. 

 

If you don’t have a year-end date of 31 March, you will also need to do a split period calculation for R&D costs to ensure you apply the correct rates of relief. 

 

 

R&D expenditure categories will be extended to include the data costs and cloud computing (consumables and software), but these apply for accounting periods starting on or after 1 April 2023. 

 

 

For accounting periods beginning on or after 1 April 2024, R&D activity will have to be physically located in the UK for the costs to be included in R&D tax relief claims. UK companies will no longer be able to include R&D costs paid to overseas group companies or third parties in their claims from 1 April 2024. 

 

Businesses currently outsourcing their R&D project work overseas in order to reduce costs will need to review their Budgets for future years. The changes are an effort to refocus R&D tax relief on UK activities. However, this measure will increase the cost of overseas subcontractors to businesses, and it can restrict access to global skills base. This can hamper the UK’s mission to grow in science and technology. 

 

 

HMRC has announced that companies will be required to deliver a Company Tax Return online including R&D Additional Information Form. Each claim will have to be signed by a named senior officer of the claimant company. 

 

- Claims must contain a detailed report on the R&D project. 

 

- The claim must also include a breakdown of costs across categories. 

 

- Companies will indicate whether or not they are claiming as R&D intensive companies. 

 

- R&D claim will be invalid if the Additional Information Form has not been completed. 

 

It is clear that there will be much greater scrutiny of R&D tax relief claims. 

 

 

For accounting periods starting on or after 1 April 2023, companies will need to inform HMRC in advance of their intention to file a claim within six months from the end of the period to which the claim relates (unless they have previously made a claim in last 3 years). 

 

 

Submit a detailed technical report to support your R&D claim. 

 

Working with an experienced R&D Tax Specialist who will ensure that your claims are accurate and submitted correctly. 

 

Submit your R&D claim as soon as possible. 

 

At Chart Accountancy, we can help you understand what steps you can take to ensure you are ready for the upcoming R&D tax relief changes.