A few interesting changes to the R&D Tax Credits scheme were announced on 15 March in the Spring 2023 Budget. We wanted to update you on these changes and give some guidance on how they may affect your future claims.
Firstly, let’s get the ‘bad’ news out of the way: For the most part, the government did not walk back the changes that they announced in last year’s autumn budget despite receiving a considerable amount of backlash from the media and various representative bodies. Here is a quick reminder of the biggest changes that were previously announced:
- A reduction of the benefit amount for PROFIT-MAKING SMEs from 24.7% to 21.5%
- A reduction of the benefit amount for LOSS-MAKING SMEs from 33.35% to 18.6%
- Ending eligibility of overseas R&D expenditure
The government has now confirmed that they are forging ahead with the rate changes, and they will start to take effect for any expenditure taking place after April 2023.
The slightly better news is companies that are paying for overseas R&D will still be able to include this expenditure in their claims until April 2024 instead of the original date of April 2023.
Finally, the government announced a new, increased benefit rate of 27% for ‘R&D intensive’ companies whose annual R&D expenditure is 40% or more of their total expenditure. How does this affect you? If your R&D expenditure is anywhere near 40% of your total expenditure, and if it makes commercial sense to do so, it may be worth re-allocating some your existing resources towards your R&D projects to meet this threshold.
To give a simplified example: Imagine there is a loss-making company that has a total expenditure of £1 million per year and ten staff who are all paid equally. 3 of the staff work exclusively on R&D projects, making the company’s R&D expenditure £300,000. At the current benefit rate of 18.6% the company would be able to claim £ 55,800. However, if they re-allocate one more resource to their R&D projects, they would meet the 40% threshold and the benefit would rise to 27% of £400,000 which is £108,000. In a real-world scenario there would likely be more factors to consider, but if your company meets this criterion, it is worth considering going down this route, assuming it doesn’t deviate too much from the company’s long-term goals.
Lastly, below is a summary of the other changes announced in last year’s Autumn Budget Statement that are going to take effect in April 2023.
Note – if you are already an Innovation Plus client, the following may be less relevant to you as we manage all these processes on your behalf.
Digital Submission of R&D Claims
All companies will need to submit their R&D claims through HMRC’s dedicated claims portal. They are going to enforce this policy to ensure that all R&D expenditure is submitted digitally, streamlining their risk-assessment process.
Named Officer Support for Claims
All claims would need to be singed off by a named officer of the company. This anti-fraud measure was put in place to prevent unauthorised claims being made in the name of the company.
Associated Agent Details in Claims
R&D claims will now have to include details of any 3rd party agents involved in claim preparation and submission. This gives HMRC the opportunity to identify and flag agents who have a history of preparing non-compliant or illegitimate claims.
Pre-Notification of Claims
Companies submitting their first claim (and those that have not submitted a claim in the last three financial periods) must now notify HMRC of their intention to file a claim within 6 months of the end of the accounting period being claimed. This approach allows HMRC to proactively communicate with companies about what their expectations are regarding the claim’s compliance.
Additional Information Required for Claims
As part of the higher level of scrutiny that HMRC is applying to claims, all R&D claims must now include additional information to support the claims, such as a detailed breakdown of R&D expenditure types. This has always been considered to be best practice in claim preparation and will be enforced going forward.
Expanded Eligibility Categories
Companies will now be able to include cloud, data and analytics costs for eligible R&D projects. To read more about this please visit our previous article on this topic [link]
We hope you found this useful. If you have any questions about how these changes may affect your specific position, please let us know.