How will upcoming R&D changes affect business?

Innovation 4 Business

Changes to the R&D Scheme will mostly come into effect for expenditure incurred on or after 1 April 2023. With this in mind here are some thoughts from R&D tax manager at Innovation 4 Business, Gemma Davies, following the Spring Budget 2023.

“As an R&D tax specialist with over 13 years I have seen the R&D Tax Relief be steadily backed, and increased, to encourage innovation and protect the UK economy from overseas competition.

“It was surprising when the announcement was made in the Autumn statement last year that the SME scheme would be reduced whereas the large company (RDEC) scheme would be increased. This could impact the potential for some SMEs to invest in innovation.

“Furthermore, in the Spring Budget, Jeremy Hunt indicated there is a clear focus on renewable energies, artificial intelligence (AI) and advanced sciences.

“It is quite likely that some companies developing these innovative solutions will be start-ups struggling with funding and resources to support their activities.

“They will be affected by the SME scheme’s 44 per cent decrease to the enhancement, and the reduction in the repayment element of the R&D tax credits for loss-making SMEs from 14.5 per cent to 10 per cent. This means it is important for SMEs to be seeking advice on making R&D claims to ensure that they claim all of the R&D reliefs available.

“The Spring Budget further outlined additional support being given to R&D intensive loss-making SMEs (i.e. companies that spend 40 per cent or more of their total expenditure on R&D). Such companies can claim a credit worth £27 for every £100 incurred. How this will be quantified by the claimant companies is still to be finalised, and the devil will be in the detail.

“What is encouraging is that the announcement increases awareness that R&D tax relief is not just aimed at profitable companies, and hopefully this encourages more companies striving towards technological and scientific advances, that have high operating costs and low trading income, to make a claim.

“There are further changes to the claims process and preventative measures which are being introduced to discourage abuse of the scheme, with key changes coming into effect in August 2023.

“Companies that have not claimed R&D tax relief or credits in the last 3 financial years will be required to provide notice in writing to HMRC of their intent to make a claim, within 6 months of the end of the period of account to which the claim relates. A digital service to do this will be made available online.

“Moreover, from August 2023 secondary legislation will be introduced requiring all CT returns that contain R&D, including amended returns, to be submitted digitally through HMRC’s tax return portal. This is aimed at making the claims process more efficient and help to cleanse the marketplace of R&D advisors that have been responsible for providing what can only be viewed as aggressive R&D claims for significant contingent fees.

“The reform will also call about updating the criteria for what constitutes R&D for tax services and modernise eligibility to include the field of mathematics as a qualifying activity, and extend cost categories to include data licences and cloud-computing services.

“If you are reading this and have a R&D eligibility query or need help navigating the changes to the R&D scheme then please do not hesitate to get in touch.”

Innovation 4 Business are a property tax consultancy, specialising in all aspects of R&D claims, capital allowances, land remediation relief, stamp duty land tax and property incorporation.