Recent Changes to Research and Development (R&D) Tax Reliefs

Research and Development (R&D) tax reliefs are a crucial incentive provided by governments around the world to encourage businesses to invest in innovation and technology.

These reliefs aim to foster a competitive environment, stimulate economic growth, and promote technological advancements. In this article, we will explore some of the recent updates to R&D tax reliefs and their implications for businesses.

Additional Information form From August 8, 2023, there will be changes to the process of filing an R&D claim. HMRC will now require businesses to submit an additional information form instead of the current R&D claim report. This form can be submitted by a company representative or an agent acting on their behalf. It's essential to note that HMRC will reject any claims not submitted through this additional form after August 8, and it should be completed before the Company Tax Return.

Reduction in the enhanced expenditure As of April 1st, 2023, there has been a reduction in the enhanced expenditure rate. Previously set at 230% of qualifying expenditure, it has now been reduced to 186% of qualifying expenditure. This change impacts the level of additional support businesses can receive for their eligible R&D expenses, potentially affecting the overall benefit they can claim from R&D tax reliefs.

HMRCTo tackle fraudulent R&D tax relief claims, HMRC has strengthened its team by moving experienced investigators into the R&D anti-abuse unit. This was due to be operational by April 2023, but HMRC expedited it, and it was announced in the autumn 2021 Budget. HMRC is now adopting a considerably stricter approach towards claims after an estimated £469 million of R&D tax relief expenditure for the financial year ending in March 2022 was found to be fraudulently claimed.

Overseas R&D restrictionsEffective from April 2024, there will be restrictions on overseas R&D activities. Initially planned for April 2023, the implementation was delayed allowing the Government to assess how these restrictions would align with the potential merged R&D relief scheme.

Under the new regulations, HMRC will impose restrictions on claiming overseas R&D expenditure. Costs related to externally provided workers (EPWs), subcontractors, and contributions to independent R&D (e.g., payments to universities) outside of the UK will no longer be eligible, except in cases where it is wholly unreasonable for the company to replicate the conditions in the UK.

Expanded Definition of Eligible ActivitiesTo incentivise R&D using modern computational approaches, the government has extended the scope of qualifying expenditures to include the costs of datasets and of cloud computing, applying for accounting periods beginning on or after 1 April 2023.

To further support cutting-edge R&D, the government will also make changes to the definition of R&D for the tax reliefs, to remove the exclusion of pure mathematics. 

If you’ve been undertaking R&D activities for a while but never claimed for relief, it is worth remembering that you may be able to backdate a claim for previous financial periods. Always remember, the key to a quality R&D tax reclaim is detailed and accurate records of any time and costs associated with an R&D project.

To establish whether what you are doing qualifies, and to ensure you are maximising your claim, get in touch today to speak to one of our consultants today.

Please note: This article is provided for information only and was correct as at time of writing (02/08/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.