Changes to R&D Tax Relief
Since Autumn 2022 through to the Spring Budget 2023, the Chancellor has announced the following changes to the R&D Expenditure Credit (RDEC) Scheme (large company scheme) and the R&D SME Scheme.
Changes from 01 April 2023
RDEC Rates Change:
- Increasing the rate of tax credit for companies that carry out qualifying R&D under the RDEC Scheme from 13% to 20%
- For profit making companies claiming RDEC relief, companies will now receive 15p back in tax relief for every £1 of R&D expenditure rather than 10.53p for every £1 of R&D expenditure
- Similarly for loss making companies claiming RDEC relief, companies will now receive 15p back as a repayable expenditure credit for every £1 of R&D expenditure rather than 10.53p for every £1 of R&D expenditure
SME Rates Change:
- Reducing the rate of additional deduction received for companies that carry out qualifying R&D under the SME Scheme from 130% to 86%
- Reducing the rate of repayable tax credits for surrenderable losses from 14.5% to 10% unless the SME is “R&D Intensive” (40% of total expenditure is R&D) whereby the rate is increased back to 14.5%
- For profit making companies claiming SME relief, companies will now receive up to 21.5p back in tax relief for every £1 of R&D expenditure (depending on corporation tax rate) rather than 24.7p for every £1 of R&D expenditure
- For loss making companies claiming SME relief, companies will now receive 18.6p back as a repayable tax credit for every £1 of R&D expenditure rather than 33.4p for every £1 of R&D expenditure (If the company is R&D intensive, companies will receive 26.9p back as a repayable tax credit for every £1 of R&D expenditure)
Changes for Accounting periods starting on or after 01 April 2023
Data licences and Cloud Computing Services
- Data licence costs and Cloud Computing costs can be qualifying expenditure when employed in activities which directly contribute to the resolution of scientific or technological uncertainty
- Data licence costs do not include the purchase of data
- Cloud computing services include access to, and maintenance of, remote data storage costs, hardware facilities, operating systems and software platforms
- Where these costs are used for multiple purposes (R&D and non-R&D), these will need to be apportioned using a reasonable method
- Activities relating to advances in pure mathematics now meet the definition of a scientific or technological advance and could be eligible for R&D tax reliefs
New claimants to R&D tax relief will need to submit a Claim Notification form to HMRC for their R&D Claim to be valid. This is to notify HMRC of their intention to claim R&D tax relief. This form will need to be submitted online with HMRC via completing a HMRC digital form. Agents can process this on behalf of the client.
Claimants required to submit a form:
- First time R&D Claimants
- R&D Claimants who have not made an R&D claim in any of the previous 3 calendar years
HMRC will require company specific information including the accounting period dates you are looking to claim. HMRC will also require a “summary of the high-level planned activities” which should just be a brief outline of how your project meets the standard definition of R&D.
A Claim Notification form must be submitted within 6 months after the year end of the period of account you are seeking to make an R&D Claim. This is important as it only gives businesses 6 months after a year end to assess if they have a viable R&D claim.
Note: A claimant will not need to submit a Claim Notification Form if they manage to submit the R&D Claim within 6 months of the period end for which they are claiming R&D.