This year the R&D tax relief schemes are seeing the biggest changes since they were introduced in the UK over 20 years ago. With rates now slashed, the value of R&D Tax Credits to SMEs has been greatly reduced whilst the introduction of a range of new compliance measures aims to stamp out error and fraud. With various reforms announced over the last 12 months now being legislated for, businesses need to understand exactly what is changing and how it affects them.
To help give some clarity, below is our summary of R&D Tax Credits reforms in 2023. These are the key changes which apply to R&D activities undertaken from 1st April 2023 onwards (except where otherwise stated). For further details on the technicalities and full extent of modifications to R&D reliefs, please contact us.
SME RATE REDUCTIONS
- For profitable SMEs (Small and Medium-sized Enterprises) the additional tax deduction rate for qualifying expenditure has been reduced from 130% to 86%
- For loss-making companies, the SME payable tax credit rate has been reduced from 14.5% to 10%
NEW RATE FOR R&D INTENSIVE, LOSS-MAKING SMES
- Eligible businesses can claim a 14.5% payable credit for qualifying R&D expenditure
- Applies only to loss-making SMEs for which qualifying R&D expenditure constitutes at least 40% of total expenditure
- The government has published a technical note setting out how this measure works in greater detail
- Note: As this is a new measure announced in the 2023 Spring Budget, it will be legislated for in the 2023-24 Finance Bill. Therefore, whilst this rate takes effect from 1st April 2023, companies will only be able to submit a claim for it once the legislation is in place.
INCREASE IN RDEC RATE
- The Research & Development Expenditure Credit (large company) rate has increased from 13% to 20%
ADDITIONAL QUALIFYING EXPENDITURE
- Costs of data licences and cloud computing services can now be claimed for
- All mathematics are now included in the definition of R&D for tax reliefs, with clarification in particular that ‘pure maths’ can qualify
- This additional qualifying expenditure is subject to eligibility rules
REQUIREMENT TO PRE-NOTIFY HMRC
- First time claimants and companies who haven’t claimed R&D tax relief in the previous 3 years must now inform HMRC of their intention to make a claim using a new digital form
- The claim notification form must be submitted within 6 months after the end of the period of account that the claim relates to
- This measure is intended to allow HMRC to perform more upfront compliance checks
MANDATORY DIGITAL CLAIM SUBMISSION & ADDITIONAL INFORMATION FORM
- All claims must now be made digitally (except from companies exempt from requirement to submit a Company Tax Return online)
- Effective from 1st August 2023, all claimants must submit detailed information in support of their claims via an additional information form which must be sent to HMRC prior to the submission of the company’s Corporation Tax Return
- All claims must be endorsed by a named senior officer of the company and the additional information and claim notification forms will need to include details of any agent who has advised the company on compiling the claim
POTENTIAL MERGER OF SME & RDEC SCHEMES
- The option of implementing a merged scheme from April 2024 is still under review as the government considers responses from its recent consultation on merging the schemes
- Draft legislation for technical consultation will be published in Summer 2023
DELAY IN RESTRICTIONS ON OVERSEAS EXPENDITURE
- Proposed restriction on overseas costs for externally provided workers, subcontractors, and independent R&D contributions no longer being eligible except under certain conditions will now come into effect from April 2024 instead of April 2023
- This will allow the government to consider the interaction between this restriction and the design of a potential merged scheme
For more detailed information on the changes or to arrange a free, no-obligation consultation, contact R&D Funding Group today.
Further information can also be found on the government website here.