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February 17, 2023

Be Ready! Upcoming Changes for R&D Claims from April 2023

The UK has for many years been a driving force in innovation and the UK Government recognises this by providing tax relief schemes such as the R&D tax relief system and Patent Box tax relief system. In the Autumn Statement 2022, it was announced by HM Treasury that the R&D tax relief system will be reformed to ensure that public money is spent effectively and best supports innovation in the UK.

It was also stated that these changes will help support sustainability by raising revenue and reducing fraud and error, without materially changing the levels of R&D expenditure. To highlight the current abuse of the R&D schemes, in October 2022, it was reported that HMRC arrested 8 individuals over £16 million fraudulent R&D Claims.

The following changes will come into effect from April 2023:

  1. The definition of qualifying R&D expenditure will expand to include data licence and cloud computing and ‘pure mathematics’ costs.
  2. Qualifying R&D expenditure on subcontracted R&D expenditure and externally provided workers will be subject to tighter restrictions – including limiting to work undertaken in the UK (with some notable exemptions that tax advice should be sought on).
  3. For SMEs, the SME R&D enhanced deduction will decrease from 130% to 86% and the SME R&D credit rate will decrease from 14.5% to 10%.
  4. For those under the RDEC scheme, the RDEC credit rate will increase from 13% to 20%.
  5. For accounting periods that start on or after 1 April 2023, certain taxpayers will need to submit a Claim Notification for their R&D claim to be valid. These taxpayers include:
  • Taxpayers who are claiming R&D relief for the first time; and
  • Taxpayers who have not made a claim for R&D relief in any of the previous three accounting periods. There is an important time limit for making this notification – the latest date for submitting the notification is 6 months after the end of the accounting period so it is best to get tax advice as soon as possible to protect your position.

6. All claims for R&D tax relief (regardless of whether made under the SME scheme or RDEC scheme) will need to submitted digitally (unless exempt).

7. All claims made by taxpayers will need to include more details in their claims to combat R&D tax relief abuse – this includes:

  • Details of what the qualifying R&D expenditure was incurred on in the R&D activities;
  • The nature of the advancement in science or technology sought;
  • The field of science of technology sought to advance;
  • The uncertainties that the R&D activities sought to overcome;
  • The R&D claim will need to be endorsed by a senior officer of the company; and
  • Provide details of any agent involved with the R&D Claim - this is for HMRC to help identify agents who are submitting fraudulent claims.

What About the Future?

HM Treasury announced a consultation on 13 January 2023 to help seek opinions on the design of a single R&D tax relief scheme which would merge the existing R&D SME scheme and RDEC Scheme together. The consultation closes on 13 March 2023 and can be found here.

It is important to ensure that your R&D claim is compliant with these upcoming changes. HMRC is increasingly scrutinising claims that do not contain enough information or are non-compliant.

Here at PD Tax we have helped many innovative companies with putting together robust R&D claims, allowing them to achieve the maximum benefits from the R&D tax relief schemes. If you require assistance, please contact a member of our team today.

Disclaimer: This article if for general information only and is not intended to constitute individual advice. It is recommended that you seek independent tax advice before making an R&D tax relief claim.

Contact us today to discuss your tax requirements.
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