What you need to know about changes to R&D Tax Relief

New changes were implemented on 1 April 2023 relating to R&D Tax Relief. These changes are:

• The Research and Development Expenditure Credit (RDEC) rate increased to 20%, previously 13%.
• The SME (small and medium sized enterprises) additional deduction reduced from 130% to 86% and,
• The SME credit rate decreased from 14.5% to 10%, although the higher rate of 14.5% SME payable credit will still apply to any loss-making SMEs which are classed as R&D intensive.

What are the criteria for classing a company as R&D intensive?

For a business to qualify as R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above total expenditure for the period. The equivalent receipt of £27 per £100 of R&D expenditure.

Other changes to R&D tax reliefs

Other changes announced include:

• Expanding qualifying expenditure to include the costs of datasets and of cloud computing.
• All claims for R & D tax relief will now need to be made digitally, in the ongoing drive for HMRC to Make Tax Digital (MTD). Claims should be accompanied by a compulsory additional information form.
• Companies also need to advise HMRC of their intention to make a claim within six months of the end of the period of account for which the claim relates to, if they have not made an R&D tax relief claim in the previous three years.
• These changes apply to all claims which began before or begin after 1 April 2023 apart from the additional information form which is only required for R&D tax claims made after this date.
• Finally, the restriction to relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of this tax year.

Comment

The increase to the RDEC has resulted in the UK now having the joint highest uncapped rate of R&D tax relief for large companies in the G7.

The government is also considering responses on a consultation to merge the RDEC and SME schemes and is expected to publish a report later this year.

For help with R&D tax please contact your local MFW office, where a member of our friendly team will be pleased to assist you.