Changes to R&D tax relief are coming. What does it mean for businesses?
Tax Reliefs (including R&D)
In his 2021 Budget, the Chancellor announced a number of potential changes to the UK’s R&D tax relief rules, which are set to commence on 1 April 2023. Last week, draft legislation was finally released to shed some light on how these changes may impact innovative businesses.
Whilst some changes are relatively minor, others will have a significant impact on companies seeking to claim R&D tax relief, particularly those with overseas operations and new claimants. Moreover, with HMRC being granted new powers to reject claims and claw back excessive tax credits, making early preparation will be more important than ever, to ensure that claims are successful.
Below, you can find some of the most important points for consideration:
If you haven’t claimed R&D tax relief in the last 3 years, you will be required to pre-notify HMRC of your intent to claim within 6 months of the end of the claim period.
HMRC has not yet released details of how this notification should be made, but it has been confirmed that claims which do not comply will be automatically rejected.
New compliance requirement
Going forward, R&D claims will only be considered valid if certain disclosures are to HMRC.
Whilst specific details of the necessary disclosures haven’t yet been released, they are likely to include:
- A detailed description of the R&D undertaken;
- A breakdown of qualifying expenditure;
- Details of any agent who provided advice;
- Signature of a senior officer of the claimant company
If you do not currently submit a R&D claim report, you will need to start preparing and recording your R&D data.
If you do submit a R&D report, you will still need to speak to your advisors, to make sure that they are making the necessary changes to ensure compliance.
New HMRC powers
HMRC will be granted new powers to remove claims deemed to have been made in error.
Whilst the removal of a claim does not preclude further claims being made, this may mark a significant change in the way claims are handled by HMRC.
As such, it will be vital to submit claims well in advance of the submission deadline, and ensure that all paperwork is submitted alongside the tax return in a manner which is acceptable to HMRC.
Refocusing R&D to the UK
Expenditure on overseas subcontractors and agency workers will only qualify if it is absolutely necessary for work to be done overseas for non-commercial reasons (i.e. geographical limitations and legal requirements). This is likely to include work such as deep ocean research and clinical trials.
If you currently have overseas operations, please seek advice on how this rule could impact you going forward.
Data and cloud computing
HMRC has now set out which data costs will qualify for relief. The provision of, access to, and maintenance of the following items should, in most cases, qualify for relief:
- Data storage;
- Operating systems;
- Software platforms; and
- Hardware facilities.
In the Spring Statement, it was announced that R&D in pure mathematics will become claimable.
We’re still waiting on further details on how this will work in practice (i.e. if it will be pure mathematics or applied mathematics, such as the use of maths in robotics and computer science).
Supporting you with R&D tax relief
R&D tax relief rules can be complex and the new legislation is likely to require significant changes to the way claims are currently made. Seeking advice early will be the best way to ensure that your company will continue to be able to access the generous reliefs.
Our Incentives and Reliefs team are on hand to help you continue to make compliant claims for tax reliefs, and keep abreast of the complex changes coming into play.