Last week, the previously discussed changes to the R&D Tax Credit Scheme were amended during the 2023 Spring Budget announcement. Our Managing Director, Max Raynor hosted a webinar to discuss exactly what’s changing as of the 1st of April 2023, and how it’ll affect future R&D claims.
To all those that attended – thank you!
If you missed out this time, don’t worry. We’ve uploaded a full recording of the session above, so you can watch the session on demand.
We’ve also outlined the main takeaways highlighted by Max, which were:
• Why the legislation is changing
• R&D Tax Relief Rate changes
• Expansion of qualifying expenditure
• Changes to the R&D claim process
Why the legislation is changing
The reasoning behind these changes has remained the same as when they were first announced in the 2022 Autumn Budget:
Mainly to tackle abuse and fraud without disadvantaging compliant businesses,
Re-focus relief on activities performed in the UK and incentivise companies to move operations to the UK,
Governmental recognition of the significance of pure mathematical advances and that software can be provided as a service.
R&D Tax Relief Rate changes
So what are the changes?
The table above outlines the specific rate changes for profit & loss-making SMEs, as well as for RDEC companies.
Additionally, with the rate changes affecting SMEs and the RDEC scheme, HMRC appears to be providing the framework to bring both schemes together into a one size fits all scenario in the future.
Expansion of qualifying expenditure
For accounting periods starting on or after 1st April 2023:
Cloud Computing costs will now be eligible
Costs such as AWS can now be included
Pure Mathematics costs can also be included
Beneficial for companies whose R&D relates to quantum computing or deep-tech
For accounting periods starting on or after 1st April 2024:
No Overseas Contractors
Externally provided workers (EPWs) will only qualify if paid through a UK payroll
This is a delayed change from the original 2022 Autumn Budget announcement.
Although set to come into effect on the 1st of April 2024 the above could be set to change in future budget announcements.
Changes to the R&D claim process
Not only are there changes coming to the rates, but also to the actual process of claiming R&D relief.
Most notably, they are:
Details of any advisor used to complete the claim need to be included
Pre-notification requirement: Companies claiming for the first time (or first in 3 years) must inform HMRC of their intention to file a claim within 6 months of the relevant accounting period
At the end of the session, Max answered a few questions from the attendees.
Q: How do you demonstrate your company is R&D intensive?
A: For loss-making SMEs you have to demonstrate to HMRC that 40% of your total expenditure as a business (both R&D and non-R&D activities) was on intensive R&D activities.
Q: For SMEs not paying 25% corporation tax, what happens to their claim?
A: If you’re a loss-making SME, you’ll receive the benefit as a cash benefit, now at the max amount of 18.6%, or if you’re R&D intensive then at the max amount of 27%.
Q: Under RDEC, are we able to claim subcontractor payments?
A: The RDEC scheme differs slightly from the SME scheme, in that unless you're an individual, a research institution, or a charity, you're unable to claim subcontractor costs back under the RDEC scheme.
While it seems as though a lot is changing in the next two years, Claim Capital is here to assist you with the transition. Please don’t hesitate to get in touch with any questions that weren’t answered in the webinar, or just for more clarity on how the changes will affect your claim.