Changes to planned R&D reforms

31 March 2023

In the recent budget, Chancellor Jeremy announced a new relief for R&D-intensive SMEs.

advice : Tax

This month Chancellor Jeremy announced his first budget revealing several changes and reliefs to support growing UK businesses. A lot of attention was received from R&D reform updates that have been announced earlier in Autumn 2021, and additional two changes were revealed to this generous scheme.

Firstly, the requirement to provide additional information will apply to all claims made on or after 1 August 2023. This measure has been expected to apply to claims for accounting periods starting on or after 1 April 2023 so the timeline extension is a welcome change to ensure that your claims have all the supportive documents required. Find all the additional requirements listed at the end of this blog. 

Secondly, the restriction on overseas expenditure will now apply from 1 April 2024, instead of 1 April 2023. 

Qualifying overseas expenditure is the amount of R&D undertaken outside the UK, where particular 3 factors apply. They must all apply for the expenditure to qualify. Those factors are:

  • the first factor is that conditions necessary for the R&D are not present in the UK;
  • the second is that the conditions are present in the location where the R&D is undertaken;
  • the third factor is that it would be wholly unreasonable to replicate the conditions in the UK.

This is to allow the government time to consider the interaction of this measure with its plans for a merged R&D tax relief scheme. More information about the potential merger of both schemes and different rates can be found here.

New relief for R&D-intensive companies

In the recent budget, Chancellor Jeremy announced a new relief for R&D-intensive SMEs, aimed at encouraging growth and ensuring the UK is a competitive jurisdiction to attract investment. This initiative will specifically target loss-making R&D-intensive SMEs and will be available from 1 April 2023.

A company is considered R&D intensive where its qualifying R&D expenditure is worth 40% or more of its total expenditure (defined by reference to total expenditure in the company’s accounts, with some adjustments). Eligible companies will be able to claim a credit rate of 14.5% compared to the 10% rate available to loss-making companies not meeting the R&D intensive criteria.

The Additional Information form for R&D will include:

  • the Unique Tax Reference (UTR) number of the company;
  • employer PAYE Reference number;
  • VAT Number;
  • contact details of main internal R&D contact at the company;
  • the main type of business carried out (SIC code);
  • if completed by an agent, the agent reference number;
  • contact details of any agent working on the claim;
  • accounting period start and end dates;
  • qualifying expenditure under the following categories:
  • employee costs
  • externally provided workers
  • contracted out R&D
  • software
  • consumable Items
  • payments to participants of a clinical trial
  • data licence (for accounting periods starting on or after 1 April 2023)
  • cloud computing services (for accounting periods starting on or after 1 April 2023)
  • contributions to independent R&D costs (RDEC only)
    • amount of the above that is qualifying indirect activities (QIAs);
    • number of projects claimed for;
  • descriptions of the projects under 5 headings:
    • What is the main field of science or technology?
    • What was the baseline level of science or technology that you planned to advance?
    • What advance in that scientific or technical knowledge did you aim to achieve?
    • What scientific or technological uncertainties did you face?
    • How did your project seek to overcome these uncertainties?
  • for 1 to 3 projects the company will need to describe all projects, covering 100% of the qualifying expenditure;
  • for 4 to 10 projects it will need to describe projects that account for 50% of the total expenditure, with a minimum of 3 projects described;
  • for 10 to 100 plus projects, it will need to describe projects that account for 50% of the total expenditure, with a minimum of 3 projects described – however, if the qualifying expenditure is split across multiple smaller projects, describe the 10 largest;
  • number of EPWs who worked on the projects;
  • PAYE scheme reference for those EPWs.

Large Business customers with a Customer Compliance Manager (CCM) should contact the CRM to agree with the level of information required before submitting the Additional Information form. We have written an in depth blog last month about additional information.

The R&D Tax Credits world is a complicated one. Our experienced team supports clients with their claims submissions for years now. Get in touch and we will be glad to support your business.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.