As announced in the recent Budget, the government has tightened and restricted the availability of research and development (R&D) tax reliefs in response to a recent increase in fraudulent R&D tax credit claims.
The key measures introduced are as follows:
- Enhanced R&D tax relief available for SMEs is to reduce from 130% to 86%.
- The rate of the SME payable credit rate, which can be claimed for surrenderable losses, is to be decreased to 10% (from 14.5%).
- The RDEC rate, the R&D scheme for large companies, will increase from 13% to 20%. The 20% credit will remain taxable.
Where an accounting period straddles this date, the changes will apply to the proportion of the R&D costs relating only to the period after 1st April 2023.
For accounting periods commencing after 1st April 2023:
- The Government is restricting relief for overseas activity. Therefore, the following expenditure will generally only qualify to the extent that the relevant activities are carried on in the UK:
- subcontracted R&D;
- contributions to independent research (R&D expenditure credit regime only); and
- the costs of externally provided workers (EPWs)
- Companies will need to inform HMRC, in advance, that they plan to make a claim for R&D tax relief. They will need to do this, using a digital service, within six months of the end of the period to which the claim relates. Companies that have made a claim in any one of the preceding three calendar years will not need to pre-notify. Companies that file their R&D claims before the notification deadline will also be exempt from notification.
- R&D claims will need to be more comprehensive, and they will need to be accompanied with written reports. Narrative must include clear evidence of a company’s technological or scientific advancements and it must document the uncertainties faced or how these have been overcome through the research.
We can work with you to assess the impact of these changes on your tax position. Get in touch with out Gravita expert, Toby Hermitage.