R&D tax credits – taking full advantage of the changes
The development of science, technology and new innovation in industry is encouraged through a programme of tax credits for qualifying research and development (R&D) activities for the regime is for all companies.
The R&D regimes are under continuous review and significant changes were introduced from April 2023 and beyond.
Companies should carefully consider whether their activities qualify for valuable R&D tax credit relief and take full advantage where it is available.
The rules and qualifying criteria for the R&D tax credit relief system, across all industries and sectors, can be complex in terms of identifying what projects qualify for relief. There are two different schemes, one for small and medium-sized enterprises (SMEs), and one for large companies. R&D tax relief is only applicable to companies undertaking qualifying R&D activities.
R&D tax credit schemes
The main objectives of the recent R&D tax credit schemes review have been to ensure that:
- The UK continues to be an attractive place for businesses to undertake cutting-edge research,
- Taxpayer money is used effectively is appropriately targeted, and
- The reliefs continue to be fit for purpose.
Innovation and increasing investment in R&D are seen as important drivers of economic growth by the UK government. The R&D tax credit rules have been updated from 1 April 2023 with a few welcome changes, including relief to companies innovating in pure mathematics and incurring costs relating to cloud computing and data.
Some less-welcome measures have been delayed to April 2024, including proposed rules for externally provided worker (EPW) and subcontractor costs which, from that date, will largely only qualify if the work has been performed in the UK.
Other significant changes
The following significant changes are aimed at targeting perceived abuse of the R&D tax credit regime and improving compliance:
- Claims must be made digitally with additional information provided to HMRC on a new digital form,
- New entrants and companies who have not made a claim for three years, will have to notify HMRC, within six months of the end of the period to which the claim relates, that they are intending to make a claim, and
- Each claim will need to be endorsed by a named senior officer of the business and will be required to name any third-party agents engaged in advising on the claim.
In response to reports of widespread abuse, changes to the rates of relief for qualifying R&D spend incurred on or after 1 April 2023 have been introduced:
- The RDEC rate, for large companies, will increase from 13% to 20%, and
- The additional deduction for SMEs will decrease from 130% to 86%, and the SME credit rate will generally decrease from 14.5% to 10%, unless the SME is deemed a R&D intensive company. Other significant changes are in the pipeline, including the design of a single, simplified R&D tax credit scheme, modelled on the RDEC scheme already in place.
If you believe that your company is engaging in qualifying R&D activity and think you have grounds for a valid relief claim, please contact either:
Roger Wareham – Partner
Bournemouth
E: [email protected] T: +44 (0)1202 204717
Sheryl Davis – Partner
High Wycombe
E: [email protected] T: +44 (0)1494 416080
