Jessica Brook, Tax Incentives and Reliefs Manager at Haines Watts discusses all of the vital changes you need to be aware of if you're claiming for R&D tax credits.
Innovation has long been cited as one of the critical factors for business success. And for those who have pushed the boundaries and adopted a forward-thinking approach, research and development tax relief can provide a real cashflow injection. The relief will play a huge role in the Government’s big plan to raise total R&D investment to 2.4% of the UK’s GDP by 2027. So, it’s crucial that our research and development tax relief scheme remains both competitive and up to date.
With this in mind, the Government opened a review into the scheme earlier this year. In the wake of this review and the Autumn Budget , the Government has decided to make some big changes to the UK’s R&D tax relief schemes that will take effect from 1 April 2023. Whilst this may seem far away, early preparation will be key for ensuring future claim success.
Data and cloud computing
After years of campaigning, the scope of R&D qualifying expenditure will finally be broadened to include license payments for datasets, cloud computing and data processing costs directly attributable to R&D activity.
This is a huge milestone for R&D tax relief -bringing the scheme up to date with the demands of modern-day innovation which is often highly dependent on data and cloud processing.
Innovation in the UK
Any research and development activity which is subcontracted to third parties outside of the UK will no longer qualify for relief, and costs incurred on payments to externally provided workers will only qualify for relief if these workers are paid through a UK payroll.
This will go a long way in ensuring that innovation is UK-focussed. But if your business is currently claiming for R&D expenditure overseas, now is the time to start having conversations with your advisors to understand the impact of the new rules for your business and to ensure you’re prepared for the changes.
Anti-abuse and compliance measures
Over the last year, we’ve spoken out about the rising cases of improper and fraudulent R&D claims. Because the R&D advisory profession is unregulated, we’ve seen more unregulated advisors, who are not members of professional bodies, submitting dubious claims. HMRC have already been making an active bid to address these claims.
However, following the consultation on R&D, they have announced that they will be adding even more resource to the R&D tax compliance team and they will be setting up a cross-discipline team which solely focuses on tackling abuse.
HMRC will also be introducing a number of new measures as of 1 April 2023 to improve compliance, including: all claims being submitted digitally; more detail required to substantiate claims; endorsement by senior officers in the business; and informing HMRC in advance if you’re making a claim.
If you already work alongside our advisors, this change won’t have a huge impact, as we already provide the level of detail necessitated by HMRC in our R&D reports.
SME or RDEC?
There’s also been further clarification on how the SME scheme will interact with Research and Development Expenditure Credits (RDEC). Going forward, it will be possible to make or increase RDEC claims where certain assessments have been made by HMRC.
Additionally, if your business is growing organically, and you’re transitioning from small to large, you will be granted a one year grace period in which you can still retain your SME status.
Supporting you with R&D tax relief
Whether you’re looking for clarity on the new qualifying costs, advice on your overseas activities, or you’re just looking for support with your claim, our incentive and reliefs team are on hand to support with you with all your R&D queries. www.hwca.com