R&D Tax Credits Reform: Understanding the Changes and Preparing for the Future
As a chartered R&D tax credit consultancy, LimestoneGrey has closely followed the evolving landscape of R&D tax credits in the UK. With the upcoming autumn budget, we anticipate crucial clarifications that will shape the future of R&D tax incentives. In this blog, we aim to provide a comprehensive timeline of the key reforms over the past year and discuss what these changes might mean for businesses.
A Year of Significant Changes
The past 12 months have been pivotal for R&D tax credits. Here’s a brief timeline of the major reforms:
Expanded Qualifying Activities and Expenditure
For accounting periods starting on or after 1 April 2023, the scope of qualifying expenditures has broadened. Cloud computing services and data has been as qualifying expenditure and advancements in pure mathematics are now recognised as qualifying R&D activities for both the RDEC and SME tax relief schemes, which is a positive step forward for making the relief fit for modern day projects.
Advance Notification Requirement
For accounting periods starting on or after 1 April 2023, certain companies are required to notify HMRC in advance of their intention to make a claim. This notification must be made within six months of the end of the accounting period in which the R&D occurred. If you do not notify HMRC, the ability to make a claim will be withdrawn.
Changes in Relief Rates
Effective from 1st April 2023, there’s a shift in the relief rates – a reduction for SMEs but an increase for RDEC relief recipients, which is a disappointment as this will have a negative impact on many companies who rely on the relief, particularly start-ups. A third relief rate has been introduced for companies whose R&D costs are a large proportion of their overall business costs, however, there is criteria to be met to qualify for this higher SME rate.
New Claim Requirements
From 8th August 2023, all R&D tax credit claims must be accompanied by a digital additional information form, designed by HMRC. This form necessitates a detailed narrative of the R&D projects and ensures HMRC captures essential information for claim assessment.
Budget Announcement – A Turning Point?
The forthcoming budget announcement has the potential to bring further confusion as information on the proposed single scheme and further reform changes are expected to be announced.. Businesses are keenly awaiting to understand how this new single scheme will integrate with the existing changes.
The reforms to date, while aimed at streamlining the R&D tax credit system, have been disruptive for businesses. The changes suggest an attempt to achieve increased compliance and detail in claim submissions and an effort to ensure the relief is fit for modern day R&D activities. However, the reduced rates and HMRC’s new draconian interpretation of the existing subcontractor legislation has the potential to devastate R&D tax reliefs for SMEs.
Navigating the Complexity and Looking Ahead
At LimestoneGrey, we understand these complexities and the importance of staying abreast of such changes. Our role is to demystify these reforms and help businesses adapt their strategies accordingly.
As we await further details from the Chancellor’s announcement, it’s crucial for businesses to start preparing. Understanding the nuances of these reforms and how they impact your R&D tax credit claims is essential.
The landscape of R&D tax credits is evolving, and staying informed is key to maximizing your claim. As always, LimestoneGrey is here to guide you through these changes and ensure your R&D claims are both compliant and optimized.