The recent 2022 Autumn Statement announced the following changes in regard to the R&D regime which will come into effect in a matter of months. This blog will outline the various changes which need to be understood in order to structure spending decisions and ensure required evidence is maintained over the next few months.
SME SCHEME
From 1 April 2023, the SME tax relief will be changed from an additional deduction of 130% of qualifying costs to the lower amount of 86%. Loss-making companies who previously could claim a repayable tax credit of 14.5% will only be eligible for 10%. These loss-making companies who surrender their loss for a repayable tax credit will be worse hit by the changes – for example, an entity who previously could spend £100,000 on qualifying R&D and claim up to £33,350 will, for any spend after 1 April 2023, only be eligible for £18,600. Companies with accounting periods straddling 31 March 2023 will need to split their R&D expenditure and treat both periods separately – effectively having 2 R&D claims in one accounting period.
RDEC SCHEME
From 1 April 2023, the research and development expenditure credit (RDEC), which is mainly aimed at large companies but also at companies who receive funding for their R&D work, will be increased from 13% to 20%. This will increase the net tax saving from 10.5% to 15% of qualifying expenditure in most cases.
COMPLIANCE CHANGES
There are also several compliance changes which will come into effect in order to reduce fraudulent claims. These state that a report must be submitted which describes the R&D projects carried out and provides a breakdown of qualifying costs. Additional disclosures are the name of a senior officer at the claimant company who has endorsed the claim along with the agent who has helped prepare the claim. Another new requirement is that any company who plans to make a claim for the first time will have to notify HMRC of their R&D activity within 6 months of the year end date. The format of how to notify HMRC is not yet published but this is a significant change to companies who previously had 2 years after the year end date to submit claims and will mean staying alert to the possibility of R&D activity as it is taking place in order to meet the new deadlines.
The government are implementing changes to ensure that most R&D is actually performed in the UK, and from April 2023 subcontracted R&D work or R&D work done by externally provided workers must have been carried out in the UK in order to qualify for relief. There are limited exceptions to this.
CLOUD COMPUTING, DATA COSTS & DEFINITION TO INCLUDE MATHS
One positive change is that qualifying expenditure after 1 April 2023 can also include pure maths, cloud computing and license payments for datasets when previously these were excluded. Previously companies were only allowed to claim for software costs for programmes used for R&D purposes but now network and technology hosting costs, data storage and operating systems can also be included which could significantly increase the size of claims by tech-based companies.
It is clear that HMRC are tightening up the R&D scheme as a whole and trying to move towards more of an RDEC style scheme for all companies whilst cutting down on fraudulent claims or non-UK based R&D activity. For any companies who wish to maximise their claims they must ensure that their evidence of projects carried out is very detailed and meets the outlined criteria. Please contact FKGB Accounting for more advice and planning regarding future R&D submissions and structuring spending decisions over the next few months before 1 April 2023.
