In the Spring budget earlier this month, the Chancellor announced there would be further R&D changes to the tax credit regime, as well as confirming the already announced changes which are due imminently – from 1 April.
Changes to qualifying costs
One of the more generous reforms is that new categories of costs will be eligible for qualifying enhanced relief.
This includes expenditure on cloud computing services, pure mathematics, and data sets. This was very much needed as in recent years we have seen investment in the technology sector go from strength to strength – it more than doubled in 2021.
Reporting requirements
Companies who wish to undertake R&D activity must now do so under stricter reporting conditions. All R&D claims will have to be submitted digitally and must provide a breakdown of the costs claimed across the qualifying categories of expenditure.
Companies are also required to provide at least a brief description of the R&D activities undertaken. The information must be submitted via an online form before or at the same time as the CT return. This change is to take effect for all claims submitted from 1 August 2023.
Each claim will also need to be endorsed by a named senior officer of the company and claims will need to include details of any agent who has advised the company on the claim.
Pre-notification of R&D claims
Companies who have not previously made an R&D claim but intend to do so must notify HMRC within six months of the end of the accounting period to which the claim relates.
This is also the case for those companies who have previously submitted R&D claims but have not done so within the three previous accounting periods. Those that have claimed within this time do not need to pre–notify HMRC.
If no notification has been made within six months of the end of the accounting period for a new/previous claimant company, then no claim will be allowed by HMRC for that period. This change is effective from 1 April 2023.
Restriction of overseas expenditure
It was previously announced that costs related to overseas subcontractors would be eliminated from 1 April 2023. This would mean companies would no longer be able to include these costs as part of their R&D claim. This change has now been postponed until 1 April 2024.
New Credit Rate for loss-making SMEs
An enhanced R&D tax credit will be made available to loss-making SMEs for accounting periods starting on or after 1 April 2023. Companies that are R&D intensive, meaning they spend 40% of total expenditure on qualifying R&D will be eligible to claim 27p for every £1 spent.
Changes to Tax Relief
The current and new tax benefit of making an R&D claim under the SME and RDEC schemes is summarised below.
| Claims for accounting periods starting before 1 April 2023 | SME | RDEC | |
| Profit-making | Loss-making | ||
| Qualifying expenditure | £1 | £1 | £1 |
| Enhancement rate | 130% | 130% | 13% |
| Repayable credit rate | 14.5% | ||
| Benefit | 25p | 33p | 13p |
| Benefit (below the line) | 11p | ||
| Claims for accounting periods starting on or after 1 April 2023 | SME | RDEC | ||
| Profit-making | Loss-making | R&D intensive loss-making | ||
| Qualifying expenditure | £1 | £1 | £1 | £1 |
| Enhancement rate | 86% | 86% | 86% | 20% |
| Repayable credit rate | 10% | 14.5% | ||
| Benefit | 22p | 19p | 27p | 20p |
| Benefit (below the line) | 16p | |||
Get in touch
If you wish to get in touch to discuss a potential claim or any of the above changes, please do not hesitate to call on 01204 414243, or visit our R&D hub right here.
Disclaimer
The information was correct at time of publishing but may now be out of date.
