Research & Development (R&D) tax relief changes
Research & Development (R&D) tax reliefs support companies that work on innovative projects and can be a valuable financial support.
Over the past few years, HMRC has been announcing new changes to the regime to combat fraud and to minimise abuse of the system. Not all of the proposed changes have been positive for tech-based businesses. However, recent announcements of the changes coming into force in April 2023, have meant R&D-intensive companies are able to benefit more from the new regime than originally anticipated.
R&D tax relief rates from 1 April 2023
For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.
One of the recent changes that will be welcomed, is that a higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive. To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.
Changes to the process of making R&D claims
If a company has not made an R&D claim within the previous 3 years they will need to notify HMRC within six months of the end of the period to which the claim relates.
The notification will also include details of the R&D advisor that the company intends to use to process the claim.
This measure will be likely more relevant for first-time claimants.
These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023.
In addition to the process above, all R&D claims made on or after 1 August 2023, will require an additional information form to be completed and provided to HMRC. These forms will include details of the R&D projects, the costs involved, the workers involved and details of the agent who helped the company with the claim.
Expansion of the scope of qualifying expenditure
It has also been announced that the R&D regime is to include further qualifying expenditure to include the costs of datasets and cloud computing, as well as the cost of pure mathematical advances.
The restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.
This restriction will be within both the SME and RDEC schemes and relates to subcontracted R&D expenditure and payments for externally provided workers (EPWs) outside of the UK.
This delay will again be welcomed by those companies that rely on experts outside of the UK to be able to progress their projects.
How can Edwards Accountants help?
If you want to know more about how the changes in this scheme will affect you, why not contact us to speak to our trusted team. We are an independent practice of chartered accountants, who are widely recognised and respected throughout the Midlands. Our vast experience and extensive range of services allow us to offer specialist accounting to businesses and individuals, especially businesses within the technology industry. Our experienced accountants are here to help your business be more tax-efficient and take advantage of the tax reliefs on offer, with the support of our East and West Midlands auditors to ensure you are always compliant.
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