Budget 2023: R&D Tax Relief Changes
First and foremost, I am delighted to report that companies will continue to get tax relief on their R&D activities! This is a “huge relief” for those operating in sectors heavily dependent on research and development.
Changes from 1 April 2023;
- The Research and Development Expenditure Credit (‘RDEC’) rate for large companies will increase from 13% to 20%.
- The Small and Medium Enterprise (‘SME’) additional deduction rate will reduce from 130% to 86%, with the SME payable credit also decreasing from 14.5% to 10%.
- However, loss-making SMEs who spend at least 40% of total expenditure on R&D activities (‘R&D intensive companies’) will retain the 14.5% rate for payable credits.
- Qualifying expenditure will be extended to include the cost of datasets and cloud computing.
The definition of R&D is being expanded to include pure mathematics. - New measures to combat abuse of the R&D tax reliefs system that are also being introduced including the requirement for all claims to be made digitally with endorsement by a named senior officer of the company; and requiring advance notice to HMRC before making a claim – unless the company has made a claim in one of the previous three accounting periods – with details of any agent who advised the company making the claim.
Future changes
- From 1 August 2023 companies seeking to claim should be aware of the new requirements to submit an “Additional Information Form”. This form will provide HMRC with further claim details than originally required.
- Certain claimants will need to notify HMRC in advance if they wish to claim R&D tax relief; the notification will need to be made within 6 months of the relevant period end through a new digital service.
- There is also a delay to the overseas expenditure restriction until 1 April 2024 to allow the government to consider the interaction between the restriction and the design of a potential new R&D tax relief scheme.
- The government is considering proposals to introduce a new single R&D tax relief system based “as much as possible” on the existing RDEC scheme. According to the government, a single scheme based on the RDEC would be simpler for claimants to apply. It would simplify the UK tax system and further provide certainty of tax relief at an earlier point, making it more attractive to investors.
It is reassuring that the Treasury has softened slightly on the significant detrimental impact of cuts to SME R&D tax reliefs being introduced in April and the delay to the territoriality restriction. It is worrying however that the Treasury is working towards introducing a new R&D tax relief scheme from 1 April 2024. Given we are due to receive some draft legislation on this over the summer, it does not give businesses much time to prepare, plan and transition to the new regime on 1 April 2024.
If you have any R&D tax relief questions then please don't hesitate to drop an email to hello@yes.tax
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