Changes to HMRC’S approach to R&D claims from 1 April 2023
From 1st April 2023 there will be significant changes following the recent crackdown on abuse of R&D tax relief claims.
More strict ruling on compliance is set to be introduced and at Cowgills we can assist you in the process.
As part of the changes, it is now a necessity for more thorough R&D claims with accompanying written reports to be submitted. The narrative must include evidence of a company’s scientific or technological advancements and details of the technical uncertainties faced or overcome to achieve them. Written reports must also include a breakdown of the qualifying expenditure and for accountability, all reports must be endorsed by a senior officer from the claimant company and must include details of the agents who have advised on the claim.
This change will be of minimal impact to many claims which are already being prepared with written reports. However, it may be the case that some businesses may find themselves subject to HMRC enquiries where written evidence is insufficient.
Companies need to notify HMRC of upcoming R&D claims in advance
Potentially the most significant of the changes announced is the introduction of advance notification of R&D claims. Every company that has never submitted an R&D tax relief claim will need to inform HMRC if they are considering submitting a claim within six months from the end of the accounting period for which the claim relates. A company that has made a claim in the last three accounting periods will not need to notify in advance.
Unfortunately, this change will mean that it will no longer be possible to include the previous two closed tax years’ R&D projects within a claim and make any subsequent CT600 amendments. Further details of how the advance notification will be implemented are not currently available, however this significantly shortens the timeframe in which companies need to determine whether they make an R&D claim.
It is therefore important to consider the possibility to claim R&D tax relief as soon as possible to ensure that the benefit is not lost. Please do not hesitate to get in contact if you believe you may be undertaking innovative activity to ensure all valid R&D claims can be made and that any potential benefits are received.
Paper returns are no longer an option
HMRC have also announced that from 1st April 2023, companies will no longer have the option to submit paper Corporation Tax returns. All claims will therefore have to be made digitally via filing software going forwards. As the paper return had essentially become a fallback option should online submission be unavailable, we are unaware at this stage of any potential alternatives that HMRC plan to introduce, if any.
Changes to qualifying expenditure
The qualifying expenditure upon which companies can claim is also set to change. Until 1st April 2023, UK companies are able to claim 65% of qualifying subcontractor expenditure on any subcontracted activities in the UK or abroad. The new regime will limit relief across all R&D schemes so that claims can only be made on qualifying expenditure for subcontracted activities that take place solely within the UK.
Additionally, HMRC have historically held a strict stance on hosting and cloud computing costs however they have announced that these costs will now qualify for relief. Companies can claim expenditure on license payments for datasets/hosting costs and for computation/data processing software. These costs will follow the same rules as other software costs and will be apportioned accordingly for any non-R&D element of the expenditure.
Companies carrying out R&D activity within the field of pure mathematics can claim under the R&D tax relief scheme. This will apply to companies working within the financial or insurance fields such as shipping or automotives.
Preparation for the changes
It is important to note that the changes are set to be introduced in April 2023, therefore there is still time to submit any two year claims or claims that include subcontractor work undertaken abroad.
Draft proposals have been submitted, however, specific details will be announced in the Spring Finance Bill which will be released early this year.
Should 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.
The information was correct at time of publishing but may now be out of date.