In addition to the rate changes, there have been a number of technical and administrative changes. Some of these apply for accounting periods starting on or after 1 April 2023 and 1 April 2024 in some cases.

Advance assurance

HMRC have widened the scope of who can apply for advance assurance of their R&D claims. All SMEs can apply provided the company is not part of a group and none of the companies linked to the claimant company has previously made a claim.

From an administrative point of view, application is made with the submission of an online form. However, before the company can claim for R&D tax relief for accounting periods beginning on or after 1 April 2023, a claim notification form must be completed.

Companies will not need to submit this claim notification form where they are first-time R&D claimants, or R&D claimants who have not made an R&D claim in any of the previous 3 calendar years. The time period for making a claim is from the first day of the accounting period to which the claim relates to 6 months after the end of the period of account that, includes the relevant accounting period.

Where the company makes its R&D claim (within the corporation tax return) before the deadline, it must not submit a claim Notification form online.

Extending costs that qualify for R&D relief

Mathematics

The BEIS guidelines have been updated to make clear that activities relating to pure mathematics now meet the definition and are eligible for R&D tax relief.

Data Licenses and Cloud Computing Services

Data licenses, cloud computing services systems and software platforms costs can be qualifying expenditure where incurred for activities which directly contribute to the resolution of scientific or technological uncertainties. If they are not used 100% for R&D, a reasonable apportionment will be accepted. Please note there is an exclusion if the business has a contractual right to sell data onwards and/or a contractual right to publish, share or otherwise communicate data with a third party.

Refocusing R&D relief to UK activities

Changes originally announced for accounting periods beginning on or after 1 April 2023 are now proposed to take effect from 1 April 2024. R&D activity will have to be physically located in the UK for the costs to be included in R&D tax relief. UK companies who currently claim R&D costs paid to overseas group companies or third parties may no longer be able to include these costs in their claims. The costs of externally provided workers (EPWs) will be limited to work undertaken in the UK. There will be some specific exemptions.

Amount of tax relief

What are the rate changes:

  • Effective on and after 1st April 2023
  • RDEC will increase from13% to 20% meaning a 15% post tax benefit
  • SME will decrease from 14.5% to 10% meaning a 21.5% net benefit

The above changes to the rates were meant to improve the competitiveness of the RDEC scheme and be a step towards a simplified, single RDEC-like scheme for all.

This also means that companies making a claim may have to split the claim into different rates to make a claim. This can create some complexity, but a trusted, competent professional agent/advisor can assist in this area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.