R&D Tax Relief: New reforms announced
Following stakeholder feedback from the consultation held by the UK government, the Spring Statement 22 announced a number of beneficial reforms to be brought into effect from 1st April 2023. These include the following:
Enhanced Research & Development (R&D) Tax Relief potential:
- Acknowledging that the appointment of overseas subcontractors and agents is sometimes absolutely necessary, the costs associated with their commissioning will continue to be allowable in calculating R&D expenditure, offering an opportunity for an enhancement of R&D tax relief.
- In recognition of the growing volume of R&D, which is underpinned by mathematics, pure mathematical research is now qualifiable allowing associated costs to be included in computing R&D tax relief.
- Where previously only a proportion of cloud computing costs could be included, all cloud computing costs are now qualifiable.
- There is also intention to increase the generosity of the R&D Expenditure Credit Scheme (RDEC), which is claimable by large companies – to what extent is yet to be defined.
- Qualifying expenditure that will be paid after the end of an accounting period can now be claimed for, up to 24 months, as opposed to 12 months. This allows for longer term expenditure with deferred payments to be brought into a given claim.
- Where companies have received notified state aid, they can prorate the funding to calculate RDEC with the remainder costs computed under SME (which is more lucrative).
Eliminating features of the legislation which create anomalies or impedes efficient submission of claims:
- Allowing companies to claim for RDEC if they had previously incorrectly claimed under the SME scheme, with expenditure generally qualifying where a payment had been made within two years of the end of the accounting period in which the expenditure was incurred.
- Supporting SMEs transitioning to large company by allowing SMEs within the group to retain SME status (the more lucrative scheme) for a year following transition.
- Companies which did not receive a notice to file due to failure to register, are dormant or at risk of liquidation are now eligible for claiming the relief.
- All claims will now have to be endorsed by a named senior officer of the company, with details of the agents who advised in compiling the claim, meaning greater scrutiny directed towards unregulated tax agents.
Some potential drawbacks:
- A company seeking to claim will need to provide HMRC with advance notification, within six months of the end of the accounting period in question, unless they have filed at least one claim, within the last three years
- All claims must be made digitally, meaning potential delays in submission times where claims are prepared through tax agents who lack the necessary software.
While R&D Tax Relief provides excellent incentives for UK companies to invest in innovation, the claims process itself can be complicated and convoluted, with lengthy paperwork involved and plenty of room for error. It is therefore essential that businesses seek specialist advice to ensure that all associated risks are minimised and that all aspects of the process are taken care of, thereby maximising one’s chances of getting back all the tax benefit owed to you, through the undertaking of innovative activities.
With clients across the UK, Beavis Morgan’s Tax Relief experts, made up of tax and engineering professionals, have been working with companies involved in creating new, innovative products and services for many years.
Our highly skilled and experienced team is very proud of our 100% success rate in making successful claims on behalf of our clients across a variety of sectors. And a very small proportion of our claims get enquired into, because all our fees are contingent and we always liaise with HMRC. We are also tax experts and we are regulated, so we deliver compliant claims.
For more information, or to arrange a no obligation preliminary meeting to discuss how your company could qualify under the R&D Tax Relief scheme, while offering you greater confidence in a robust claim, please contact us.