Research and Development Tax Incentives from April 2023
Changes to R&D Tax Credits: What You Need to Know
If your business is currently claiming (or intending to claim) R&D Tax Relief in the UK, you’ll want to take note of recent reforms to R&D tax credits which take effect from April 2023. Here’s a summary of what you need to know.
Overseas Costs
For accounting periods starting on or after 1st April 2023, qualifying expenditure on subcontractors and externally provided workers will be limited to work carried out in the UK.
However, there will be some narrow exemptions where factors such as geography, environment, population or other conditions not present in the UK are required for research (e.g., deep ocean research) and where there are regulatory or other legal requirements for certain activities to take place in specific territories (e.g., clinical trials). Note that these exemptions will not include cost or
Externally Provided Workers (EPW’s)
The cost for EPW’s only qualifies if the service provider (or connected party) that paid them did so through the UK PAYE system.
Extension of Qualifying Expenditure
The legislation has been amended to extend the scope of qualifying expenditure to include costs for datasets, cloud computing and pure mathematics.
Changes to the Rate of Relief for SME & RDEC Schemes
For expenditure incurred on or after 1 April 2023:
- The Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
- The SME additional deduction will decrease from 130% to 86%
- The SME tax credit (surrender) rate will decrease from 14.5% to 10%.
Changes to the Process of Making R&D Claims
First-time claimants and those who have not made claims in the past three accounting periods will need to pre-notify HMRC that they intend making a claim within six months of the claim period ending. Additionally, when making an R&D claim, companies will need to submit further information through a portal which HMRC will provide details of in April, including a description of the R&D undertaken, a breakdown of qualifying costs, details of any agent who has advised on the R&D claim and sign-off from a senior officer of the company.
Increasing Compliance Checks
Finally, HMRC continue to increase the amount of compliance checks on R&D claims in a move to counter error, fraud and incorrect claims and will do so for the foreseeable future. It’s therefore essential that companies and their advisors ensure claims are fully compliant and provide adequate justification to support them.
Click here to view the draft guidance from HMRC.
Conclusion
In conclusion, the upcoming changes to R&D Tax Incentives present both challenges and opportunities for businesses involved in Research and Development. While some companies may experience a reduction in relief under the SME scheme, the extension of qualifying expenditure and the increased rate of relief under the RDEC scheme may make it more attractive for larger companies to claim R&D Tax Credits.
It’s crucial for companies to stay informed about these changes and work with a specialist, such as Innovation Tax to ensure their R&D claims are fully compliant and justifiable. In light of these changes, we encourage businesses engaged in R&D to take advantage of the available tax incentives and invest in innovation.
Whether you are an SME or a large corporation, there are opportunities to benefit from R&D Tax Credits. With the April 2023 deadline fast approaching, it’s the perfect time to review your R&D activities and assess how these changes may affect your business. By staying informed and proactive, you can ensure that you maximise your tax relief and stay competitive in today’s fast-paced business environment.