Chancellor Jeremy Hunt announced many R&D tax changes in his Autumn Budget, including how the funding is allocated; a change that will be implemented in April 2023.
He also confirmed changes to the rates paid out under the Research and Development Expenditure Credit (RDEC) scheme for larger firms, and the small and medium enterprises (SME) R&D relief scheme.
The amendments to the rules mean that, from 1 April 2023, the RDEC rate will be increased to 20 per cent, from 13 per cent.
Meanwhile, the SME deduction rate on qualifying expenditure will be reduced to 86 per cent, from 130 per cent, and the SME payable credit rate decreased to 10 per cent from 14.5 per cent.
Loss making companies who are R&D intensive, in that R&D accounts for 40 per cent of their total expenditure, will still be able to get a 14.5 per cent tax credit. Combined with the new 86 per cent enhancement rate, this results in an effective benefit of 27 per cent.
Back in November, the Chancellor also announced that the eligibility criteria would be adjusted from 1 April 2023.
Cloud costs will now be eligible
Currently, costs relating to cloud-based technology cannot be included in an R&D claim.
From April 2023, qualifying cloud-based computing costs such as AWS and Microsoft Azure, will potentially be eligible for inclusion.
Changes to R&D claims process
Some other changes made, in respect of R&D policy, affect the claims process. Claims must:
- be submitted digitally
- include additional information
- be supported by a named officer of the company and,
- include details of any associated agents.
Furthermore, new rules will also require businesses to submit a pre-notification of their claim to HMRC, digitally. The pre-notification period is up to six months after the accounting year end.
This applies both where a business is a new claimant, or where it has not claimed in the last three financial periods.
The requirement to pre-notify HMRC will affect any business that conducts research and development, regardless of which scheme they are eligible to claim under.
Partner Colin Airey comments: “In respect of this new 6 month limit, it could easily be missed by someone who is unfamiliar with the R&D claims process, costing companies a valuable relief.
“This underlines the importance, even more so, of engaging advisers with experience of preparing claims on behalf of clients undertaking eligible R&D activities, and the knowledge to help you build R&D into your wider business strategy.”
Simplifying R&D tax relief
Looking ahead, HM Treasury also launched an eight-week consultation on the design of a single, simplified R&D tax relief scheme earlier this year, merging the existing RDEC and SME R&D relief. If implemented, the new scheme is expected to be in place from 1 April 2024.
A note on overseas R&D
For accounting periods commencing on or after 1 April 2024, Subcontracted R&D expenditure from outside the UK will no longer be eligible for inclusion in R&D claims. This measure was originally due to take effect from 1 April 2023 but has now been deferred for a year.
The aim of this change is to bring more R&D activity to the UK and incentivise companies to move operations into the UK.
R&D support from trusted business advisers
We can help you to identify your eligibility for R&D tax relief, to submit a successful claim, and to ensure that R&D is accounted for when you are formulating strategies and plans for the future of your business.
To discuss the eligibility of any of your business activities with us, or for support with making a claim for R&D tax relief, contact us today.