Changes to R&D tax reliefs

Chancellor Jeremy Hunt announced many R&D tax changes in his Autumn Statement, including how the funding is allocated between schemes, which was implemented in April 2023.

He announced changes to the rates paid under Research and Development Expenditure Credit (RDEC) and the small and medium enterprises (SME) R&D relief scheme.

Under these changes, the RDEC rate will be increased to 20 per cent from 13 per cent.

Meanwhile, the SME deduction rate on qualifying expenditure will be reduced to 86 per cent from 130 per cent, and the SME R&D tax credit rate decreased to 10 per cent from 14.5 per cent.

A proposal in the Spring 2023 budget will retain the current 14.5 per cent for R&D intensive SME companies, where 40 per cent of expenditure is on qualifying R&D.

Changes also announced by the Chancellor in July, included new eligibility criteria.

Overseas R&D

The restriction on Subcontracted R&D expenditure from outside the UK will no longer be eligible for inclusion in R&D claims unless the necessary conditions to undertake the subcontracted work are not present in the UK has been delayed until 1 April 2024.

The aim of this is to bring more R&D activity to the UK and incentivise companies to move operations into the UK.

Cloud computing and data licencing costs will now be eligible

Currently, costs relating to cloud-based technology and data licencing costs can’t be included in an R&D claim.

From April 2023, cloud-based computing costs, such as Amazon Web Services (AWS), and data licencing costs will be eligible for inclusion.

Other changes in April include:

• Claims must be submitted digitally
• Claims must include additional information
• Claims must be supported by a named officer of the company
• Claims must include details of any associated agents

Pre-notification

New rules for R&D Tax Relief claims will also require businesses to submit a pre-notification within six months of the year end of their claim to HMRC digitally.

This applies if a business:

• is a new claimant; or
• has not claimed in the last three financial periods.

The requirement to pre-notify HMRC will affect any business that conducts research and development if they are eligible to claim under either the R&D Expenditure Credit (RDEC) or the SME R&D relief schemes.

Looking ahead, HM Treasury also launched an eight-week consultation on the design of a single, simplified R&D tax relief scheme earlier this year, merging the existing RDEC and SME R&D relief. If implemented, the new scheme is expected to be in place from 1 April 2024.

These changes may restrict or alter your R&D plans, so please contact us today for advice.