HMRC are introducing big changes to the rules for claiming Corporation Tax relief on their research and development (R&D) projects. If your company carries out R&D and plans to claim for R&D tax relief for SMEs or R&D Expenditure Credit (RDEC), you'll be affected by these changes.
It's part of a new push from HMRC to boost growth and improve compliance, affecting R&D spend for accounting periods that begin on or after 1 April 2023. The new rules affect rates as well as what qualifies for R&D relief.
Let's have a look at what's changing in case there is a possibility that these changes may impact your business.
R&D RELIEF RATE CHANGES
For SME R&D relief, HMRC are lowering the additional deduction from 130% to 86% and reducing the credit rate from 14.5% to 10%.
For R&D Expenditure Credit (RDEC), the rate will rise from 13% to 20%. As a result, the benefit on expenditure incurred on or after 1 April 2023 will be 15% (up from 10.53%).
CHANGES TO QUALIFYING EXPENDITURE
The list of qualifying costs is expanding to reflect modern R&D methods better, but changes are also coming into force to drive innovation within the UK.
The new rules mean that you'll be able to claim for:
- licence payments for datasets and data analytics
- cloud computing costs
- pure mathematics
However, expenditure for overseas subcontracting and Externally Provider Workers (EPWs) who aren't paid through UK payroll can no longer be claimed. There are some exceptions to this rule, including when you can't do the work in the UK (or where it is "wholly unreasonable" to do the work in the UK).
This could be due to geography or environmental conditions (e.g, arctic climate change research), or where there are regulatory or legal reasons for carrying out the work abroad (e.g., clinical trials).
WHAT ELSE IS CHANGING WITH REGARDS TO R&D TAXT CREDITS?
Several big operational changes are coming to improve compliance and make it easier for HMRC to conduct risk assessments.
Claims will need to be more detailed with the inclusion of additional supporting information, such as a breakdown of R&D expenditure.
Claims will also need to be endorsed by a named senior officer of your company, you will also have to include details of any advisory agent you've used.
If you are claiming for the first time or have not claimed in the past three years, you will need to submit a pre-notification of your claim to HMRC within six months of the accounting period ending.
This update has been provided by R&D Tax Credit specialists Leyton UK. If you would like to access their helpful R&D changes resource toolkit, please visit their R&D Tax Credits page.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.