Changes to the process for claiming R&D tax reliefs and allowances, and what they mean for your business need careful attention right now.
From 8 August all R&D claims must be made electronically through HMRC’s portal, alongside detailed information regarding the claim.
R&D tax relief
R&D tax relief supports companies that work on innovative projects in science and technology.
HMRC have made a number of changes affecting businesses wanting to claim Research and Development (R&D) tax relief.
1. A new advance notification process has been introduced and additional information must be supplied when making a claim
2. The rates for qualifying expenditure for both the SME scheme and the RDEC scheme were changed on 1 April 2023.
3. The scope of categories for qualifying expenditure was also expanded.
4. The requirements for making a claim were also tightened.
SME scheme
An SME is considered R&D intensive where its qualifying R&D expenditure is 40% or more of their expenditure.
Loss making R&D-intensive SMEs can surrender R&D related losses in exchange for a payable credit equal to £27 for every £100 of R&D investment. The amount of R&D tax credit an SME can claim is capped at £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NIC) liability for the period covered by the claim.
RDEC scheme
The qualification for RDEC relief differs from the SME scheme in that businesses are either:
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- Large businesses – 500 or more staff, and either more than €100 million turnover, or €86 million gross assets, or
- an SME that does not meet the criteria for the SME scheme, eg
– the company is linked to another one
– has external investors which affect its status
– the company is a partner enterprise.
The rate of RDEC was increased from 1 April 2023 to 20% from 13%.
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Updates and deadlines
1. Notification process
For accounting periods starting on or after 1 April 2023, a company may need to submit a Claim Notification to HMRC in advance of making an R&D claim in its corporation tax return in order for the claim to be valid. A Claim Notification is needed if:
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- the company is claiming for the first time;
- the company has claimed for the previous accounting period, but did not submit that claim until after the last date of the claim notification period (the claim notification period ends 6 months after the end of the period of account); or
- the company’s last claim was made more than 3 years before the last date of the claim notification period.
If the company has qualifying R&D expenditure, following the new Claim Notification process is crucial, as unless a notification is made to HMRC, a claim cannot be made. The Claim Notification should be submitted within six months of the end of the accounting period to which the claim relates, and before company corporation tax return is filed. This is key, and a change from the past. Submission of the corporation tax return (CT600) before a claim has been notified to HMRC will invalidate the R&D claim.
2. Additional Information
From 8 August 2023, all R&D claims must be made electronically through HMRC’s portal, and additional information relating to the claim supplied before the company’s corporation tax return is submitted. Failure to provide the necessary information will mean that the company’s R&D claim will not be valid. The additional information to be provided includes:
Company details
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- Unique Taxpayer Reference (UTR), this must match the one shown in your Company Tax Return
- employer PAYE reference number
- VAT registration number
- business type, for example your current SIC (Standard Industrial Classification) code
Contact details
The contact details of:
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- the main senior internal R&D contact in the company who is responsible for the R&D claim, for example a company director
- any agent involved in the R&D claim
Accounting period start and end date
The accounting period start and end date for which you’re claiming the tax relief, this must match the one shown in your Company Tax Return.
Qualifying expenditure details
Include details of the qualifying expenditure.
3. Rate changes 1 April 2023
For the SME scheme
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- the rate of additional relief is reduced to 86% from 130% from that date
- the rate at which a loss arising from R&D relief can be surrendered for a tax credit is reduced from 14.5% to 10% (except research-intensive SMEs)
- loss making R&D-intensive SMEs will receive £27 for every £100 of R&D investment.
For the RDEC scheme
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- the rate of RDEC was increased from 1 April 2023 to 20% from 13%.
4. New categories and requirements
On 1 April 2023 data licenses, cloud computing services and mathematics were added as qualification categories.
Data licenses and cloud computing services
For accounting periods starting on or after 1 April 2023 data licence and cloud computing services costs can be qualifying expenditure when employed in activities which directly contribute to the resolution of scientific or technological uncertainty.
The requirements to support a claim, mean that businesses will be need to keep records that include:
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- details of accessing the data or service,
- the length of time accessed,
- and the reason for the access.
Mathematics
Company activities relating to pure mathematics now meet the definition of R&D for tax purposes. They may be eligible for accounting periods beginning on or after 1 April 2023.
The requirements to support a claim, mean that businesses will be need to keep a technical narrative describing the mathematical advances which includes:
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- a concise description of the problem
- the mathematical concepts and techniques used to address it
- the result sought and their significance.
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Get in touch
Our experts are on hand to discuss the scope of these changes. Working ahead of deadlines is key to tax planning. Get in touch today if you would like advice relating to your particular situation.