Navigating R&D Tax Changes – A Guide by Michael Stead

In 2021 HMRC undertook a review of tax reliefs to ensure that they were fit for purpose as an efficient mechanism for stimulating innovation with government funds. In November 2021 HMRC reported the data together with an outline proposal for legislation amendments.

HMRC took consultation before releasing further details in the Chancellor’s 2022 Spring Statement. During the summer of 22 the Government published a draft of the legislation, which is currently with the House of Commons and House of Lords before Royal Assent planned for this summer.

What’s about to happen from 1st August 2023?

Additional information will need to be submitted together with the claim using HMRC’s web-based portal. This coincides with Making Tax Digital (MTD) alignment for innovation relief claims requiring digital submission. Included in the additional information required is name of any agent/advisor assisting with claim preparation together with a named senior officer of the claimant company as signatory.

What’s just happened for claims on or after 1st April 2023

• Pure maths is now eligible
• Data and cloud computing costs are now allowable expenses
• If claims are incorrectly claimed under the SME scheme, then can be converted to RDEC
• Updated rate of relief: Good news first the RDEC rate is up, now the bad news, SME down. SMEs enhanced deduction has reduced from 130% to 86%, with the amount of tax credit reduced from 14.5% to 10%. Conversely the RDEC scheme has a tax credit rate increase from 13% to 20%
• Pre-notification*. Certain companies to pre-notify HMRC of their intent to claim within 6 months from the end of their accounting period. (More on this topic below)
• Time limits for R&D claims – make their R&D tax relief claims within two years of the end of the claim period.

What else is to come? 1st April 2024

Subcontracted & Externally Provided Workers (EPWs) must be from the UK with some exceptional circumstances.

*The Pre-Notification requirement is a new rule that was introduced in April 2023. It applies to certain companies that are claiming Research and Development (R&D) tax relief. Under this rule, companies must notify HMRC of their intent to claim R&D tax relief within 6 months from the end of their accounting period.

The purpose of the Pre-Notification requirement is to give HMRC more time to assess claims and to prevent fraudulent claims. Companies that fail to comply with the Pre-Notification requirement will have their claims rejected.

The following companies are required to pre-notify HMRC of their intent to claim R&D tax relief:

• Companies that have a turnover of more than £20 million: This includes companies that have a turnover of more than £20 million in the current accounting period or in the previous accounting period.
• Companies that have received more than £20 million in R&D tax relief in the previous 3 years: This includes companies that have received more than £20 million in R&D tax relief in the previous 3 accounting periods.

Companies that are required to pre-notify HMRC of their intent to claim R&D tax relief can do so by using the online Pre-Notification service. The Pre-Notification service is available on the HMRC website.

The Pre-Notification service requires companies to provide the following information:

• The company’s name and contact details
• The company’s VAT registration number
• The company’s accounting period
• The amount of R&D tax relief that the company is claiming

Once a company has pre-notified HMRC of its intent to claim R&D tax relief, HMRC will review the claim and will contact the company if there are any further questions.

The Pre-Notification requirement is a new rule, and it is still being developed. It is important to check with HMRC for the latest information on the Pre-Notification requirement.