A Guide to R&D for 2023

Rates of relief changes

For expenditure incurred on or after 1 April
2023, Research and Development (R&D) tax reliefs will be changed as
follows:

• The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%.
• The SME credit rate will decrease from 14.5% to 10% for loss-making entities. 
• R&D expenditure credit (RDEC) will rise from 13% to 20%. The after-tax impact will increase from 10.53% (based on 19% corporation tax) to 16.2% (based on 19% corporation tax) or 15% (based on 25% corporation tax).
• The R&D Intensive SME payable credit is introduced from April 2023 at the rate of 14.5%. Your company is considered R&D intensive if its qualifying R&D expenditure is worth 40% or more of its total expenditure. These eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non R&D intensive loss-makers.

This reform ensures that taxpayer support is as
effective as possible, improves the competitiveness of the RDEC scheme, and is
a step towards a simplified, single RDEC-like scheme for all.

No R&D relief for activities undertaken outside
the UK

From 1 April 2024, it will no longer be possible
for you to claim for subcontractor and externally provided worker costs where
those activities take place outside of the UK. Your company will
not be able to claim that overseas costs fall within the exemptions where the
main reason that the work is being carried out overseas is due to cost
constraints or that your business does not have suitable workers in the UK.

There are two exemptions:

• Geographical, environmental or social conditions, as a result of which the R&D activities may not be undertaken in the UK.
• Legal or regulatory requirements, as a result of which the R&D activities may not be undertaken in the UK.

The legislation makes it clear that cost and
availability of resource are not exemptions to the exclusion. Therefore, if
your company uses overseas resources, you will face a choice:

• Use a UK resource (if available) at a higher cost.
• Accept that the R&D tax relief claim will be reduced.
• If viable, move the R&D to a jurisdiction with no such restrictions.

If the cost has been processed through a UK
payroll, it can still be claimed.

The above announced changes will take place
for accounting periods commencing on or after 1 April 2023. Therefore,
unless your company prepares accounts for a period of less than 12 months, or your
company has a long period of account such that the period falling after the
first 12 months of the period of account starts after 1 April 2023, then most
of the impact will be felt in periods ending on 31 March 2024 and onwards.

R&D tax relief claims submitted on or after 1
August 2023

Digital submissions and additional information

HMRC are developing new digital forms, which will
require more information submitted along with the claim. From 1 August 2023,
all of your claims must be submitted using these digital forms, unless your company
is exempt from MTD.

What does this mean for your claim?

If your claim is prepared before 1 August 2023, you
can submit it the same way as you currently do, with no extra admin.

However, if you are preparing a strong report along with the R&D claim, it should be straightforward to complete the digital forms, as you can copy across the key information from your report.

We don’t yet know how the digital submissions and
additional information will affect processing times, so it could take you longer
than usual.

R&D tax relief claim periods beginning on or
after 1 April 2023

Changes to the rules for claims

Some of the rule changes are straight-forward and
will only apply to a small number of companies.

• Data and cloud computing costs to be added to allowable expenses.
• Advances in pure math’s will become eligible.
• Your claim can be switched to RDEC if it was incorrectly submitted under the SME scheme.

Others are a little more onerous.

For example, new or lapsed claimants will need to
submit prenotification for any claim within 6 months of the end of the claim
period. If you have made a claim in the last 3 years, you won’t need to do
this.

What does this mean for your claim?

If you’ve claimed recently, and submit claims
regularly, these changes should have minimal impact. Even if you’re a first-time
claimant, you’ll still be able to claim (without pre-notification) for historic
claims if those started before 1 April 2023. 

Anti-abuse steps

In addition to the above changes, there are
proposals to avoid the abuse of R&D relief which include:

• All claims must include project and cost details. Many advisers prepare such reports, but they have never been mandatory until now. All claims must now be supported with detail. This may lead some advisers who ‘dabble’ in the relief to outsource to an R&D tax relief specialist.
• The agent who advised on the claim must be named.
• There must be an endorsement from a senior officer of your company.
• The claim must be made digitally.
• The R&D Intensive SME Relief will be claimable by your company submitting or amending its CT return. Your company will indicate whether they are claiming as an R&D intensive company using a new digital ‘Additional information’ form, which is being introduced for claims made on or after 1 August 2023.
• If your company has never claimed R&D tax relief before, you must notify HMRC in advance of your intention to claim within six months of the end of the accounting period to which the claim will relate. If your company has made claims in any of the prior three periods, you will not have to notify. The filing date will remain unaltered, being 24 months after the end of the accounting period (for an amendment to your Company Tax Return CT600).
• In the future, if your company ceases to be regarded as ‘going concern’ solely because of the transfer of a trade out of the business, but it is otherwise financially viable, your company will still be able to claim R&D relief. For accounting periods beginning on or after 1 April 2023, where your company’s accounts would have been made up on a going concern basis, save for the transfer of activities to another group company, the accounts are treated as if they were made up on a going concern basis.

At Landi Accounting, our work in the area does differ from ‘R&D specialist’ organisations as we offer full support from bookkeeping to the final submission of the claim. We carry a wealth of knowledge from client and HMRC perspective in this area and endeavour to offer an honest opinion on whether we believe you could have an eligible claim.