What does the Spring Budget mean for R&D Tax relief?

What does the Spring Budget mean for R&D Tax relief?

Last week the Chancellor announced even more changes to research and development tax relief. Amidst the ever changing landscape, it can feel hard to keep up with R&D at the minute, and we’re hearing from more businesses looking for advice during these changing times.

We know how time-consuming and frankly confusing it can be to keep abreast of and navigate through all this change whilst juggling the day-to-day operations of running your business.

With this in mind, we’ve outlined some of the key changes, take aways and considerations that business owners need to be aware of when it comes to R&D tax relief in the coming weeks, months and years to help guide you through.

1. Changes to rates of R&D relief

We’re about to see some huge changes to rates in the coming weeks. For all expenditure incurred on/after 1 April 2023:

• The enhanced deduction available to SMEs for R&D tax relief will fall from 130% to 86%;
• The R&D tax credit available to most SMEs will also fall from 14.5% of tax losses to 10%;
• For loss-making, R&D-intensive SMEs, the R&D tax credit available will remain at 14.5%;

However, companies claiming Research and Development Expenditure Credit (namely large companies and SMEs under certain conditions) will see an increase in the value of their tax credits from 13% to 20%.

If you’re already claiming relief, you need to make sure you have a clear understanding of how the changes to the rates could impact your claim going forward, and consider how this might impact your cash flow.

It is worth keeping in mind that further reform to both RDEC and the SME scheme are expected to follow in due course.

We will of course update you as soon as we have any further information on this.

2. Changes to qualifying expenditure

Some crucial changes to qualifying R&D expenditure will come into play on 1 April. If your claim has been impacted by the changes to expenditure which we’ve listed below, you’ll need to take into consideration the potential cash impact on your business.

For all expenditure incurred in an accounting period starting on or after 1 April 2023, data licenses and cloud computing services costs will qualify for relief. As long as they directly contribute to the resolution of scientific or technological uncertainty.

It was previously announced that expenditure on overseas subcontractors would no longer qualify for relief as of 1 April 2023, but last week the Chancellor announced that this would be pushed back until 1 April 2024. This will allow for the design of a merged R&D relief, which we should hear more about in the coming months.

So, if your business is subcontracting costs abroad – whether it be research, testing or utilising the skillsets of experts from around the globe - you can still utilise the relief for the time being. It is worth noting that there will be some exemptions to this rule which will be implemented next year – but they will be considered on a case-by-case basis, so we would recommend seeking expert advice before submitting your claim, when the time comes.

3. Have you considered the additional information?

If you’re submitting a claim after 1 August 2023, there will be a requirement to complete an additional information form.

You’ll now need to provide:

• The name of the individual at the company responsible for the R&D claim
• Number of projects claimed for
• Descriptions of the projects (between 3-10 projects MUST be provided) under 5 headings:
  •  What is the main field of science or technology?
  • What was the baseline level of science or technology that you planned to advance?
  •  What advance in that scientific or technical knowledge did you aim to achieve?
  •  What scientific or technological uncertainties did you face?
  •  How did your project seek to overcome these uncertainties?

It’s important to note that there’s no longer an option to submit your claim without this additional information. So, if you don’t have access to the information needed, your claim won’t be deemed viable anymore.

4. Who is completing your claim?

As part of HMRC’s clamp down on fraud, we’re seeing new measures being implemented within the claim submission process.

Going forward if you’ve engaged with an advisor, they will need to put their name down as the agent on your R&D claim.

5. Have you considered other tax reliefs?

With rates changing, have you considered the other tax reliefs which you may be eligible for? Patent Box, for example, often goes hand-in-hand with R&D tax relief and when the two reliefs are used in conjunction with one another, it can create a huge tax saving for your business.

Another key relief which we would urge businesses to look at is capital allowances. Although the super deduction is coming to an end, the full expensing regime should still be utilised if you’ve invested in plant or machinery over the years. And it’s worth remembering that you can claim capital allowances retrospectively too, so there could be eligible costs lying uncovered in your business’s property.

Supporting you with the changes to R&D tax relief

It can be overwhelming to keep up-to-date with all of the R&D changes, especially during this period of economic change, but our experts are on hand to support you.

Whether it’s assessing your eligibility, submitting your claim or answering your questions about any of the changes we’ve set out above, please feel free to get in touch.