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Blog: R&D tax credit changes – Everything you need to know

Since its inception in 2000, the R&D scheme has provided valuable financial support to SMEs investing in research and developing new processes, products, or services. On 1 April 2023 r&d tax credit changes will be implemented. These changes will impact:
• Compliance changes
• How abuse will be tackled
• How much can be claimed

Ensure you are prepared for the future of R&D, watch our Webcast Recap: How 2023 R&D Tax Credit changes will impact your business.

 

What are all the changes that come into effect from April 1st, 2023?

Chancellor Jeremy Hunt announced in the Spring 2023 Statement further R&D tax relief support for R&D intense, loss-making SMEs. This will affect approximately 20,000 SMEs in the UK – coming into effect from 1 April 2023 and worth around £500 million per year.

All confirmed R&D changes from 1 April 2023:

Financial Position SME Up to
31 March 2023		 SME From
1 April 2023
Profit making 130% uplift on costs 86% uplift on costs
Loss-making 33.4% subsidy 18.6% subsidy

 

 

Financial Position RDEC Up to
31 March 2023		 RDEC From
1 April 2023
Profit making Headline rate 13% = 10.5% post tax Headline rate 20% = 15% post tax
Loss-making 10.5% subsidy 15% subsidy

 

If a company is loss-making and considered R&D intense, it will be eligible to claim £27 from HMRC for every £100 of R&D investment. A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure.

Extending qualifying expenditure

  • The government is extending the scope of qualifying expenditures to include the costs of datasets and cloud computing.
  • The growing volume of R&D being undertaken is underpinned by mathematics. To support this work, the definition of R&D for tax reliefs will be expanded to include all mathematics, – clarifying that ‘pure maths’ can qualify.

Addressing abuse and improving compliance

  • From April 1, 2023, companies will need to inform HMRC, in advance that they plan to make a claim. They will need to do this, using a digital service within 6 months of the end of the period of account to which the claim relates. Claim notification will only be required where a customer has not made an R&D claim for three years ending with the day before the first day of the claim notification period.
  • After 8 August 2023, all claims to the R&D reliefs will have to be accompanied by a compulsory additional information form, providing HMRC with more detail of the claim. The form will have to break the costs down across qualifying categories and provide a description of the R&D and will need to be endorsed by a named senior officer of the company.

Measures to address anomalies and unforeseen consequences

  • Allowing companies to claim RDEC where they had previously incorrectly claimed SME relief.
  • Changing the time limit for making a claim to two years from the end of the period of account to which they relate, rather than 12 months from the statutory filing date. This will prevent companies which do not receive a notice to file, either because they fail to register or notify HMRC that they are dormant, from benefiting by having more time to make a claim.

Overseas expenditure

There will be now a delay to restrictions on overseas expenditure in R&D tax relief claims. The previously announced restriction on some overseas expenditures will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief.

What are all the changes that come into effect from August 2023?

From the 8th August 2023, you will need to complete and submit an additional information form to HMRC to support your Research and Development (R&D) Tax Credit claim. Unlike some of the other changes in April 2023, this change will be compulsory for all R&D Tax Credit claims, not just for those who are new to claiming.

We have provided extra support regarding the additional information form on our blog post:

Changes to R&D Tax Credits from August 2023 – Additional Information Form

Read More

R&D tax relief changes – your questions answered

Expenditure incurred on or after 1 April 2023 will be impacted.

  • The Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%
  • The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%
  • The SME tax credit rate will decrease from 14.5% to 10%

Yes. Your losses would be surrendered at 10% rather than 14.5% so the rate of tax saving you’ll receive will be lower.

You will still be able to both claim losses and carry them forward, and if you do expect future profits then you may be better to carry forward the enhanced loss to offset Corporation Tax increases.

Not really. It more closely aligns the two schemes, but whether or not either scheme is ‘better’ for you depends on what you’re looking for the funding to do and when.

The RDEC rate will rise, but in the context of upcoming Corporation Tax that is less impressive than it sounds. RDEC provides a taxable credit, so any increase in CT would have reduced the effective rate of relief provided (because the rate of CT paid on it will have increased). That being said, 20% is more than what would have been needed to compensate for this.

  • A Corporation Tax rate of 19% will exist for Companies with profits of less than £50,000.
  • Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate.
  • From April 2023 the main rate of Corporation Tax will now be 25% for companies with profits of £250,000 or more.

If it’s an R&D cost that you need to incur but had planned in for the next tax year, you may be better to bring that forward into an earlier phase of the project as costs incurred after April 2023 will receive a lower rate of relief. There are many other tax considerations you need to consider before making spending decisions so you need to discuss this with your tax advisor as soon as you can.

100% Yes! The government promised to increase support for the UK’s most innovative companies by extending the British Patient Capital programme for a further 10 years until 2033- 34 and increasing its focus on R&D intensive industries, providing at least £3 billion in investment.

Speak to one of our experts today to find out how the coming changes will affect your R&D Tax Credits claim and ensure that your claim is compliant.

Got a question?

Our team of R&D tax relief experts is here to support all business owners worried about these changes. You can get in touch with the team to request an informal callback.

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