What are the main changes to R&D tax relief?

The tax relief scheme for research and development (R&D) is an important way to cut the costs of investing in R&D, development projects and innovation across your business.

However, the Spring Budget 2023 has brought in several changes to the R&D tax relief scheme that will affect small and medium enterprises. These changes affect both the scope and administration of the R&D scheme.

Here’s our update on the changes and how they may affect your business.

R&D changes from 1 April 2023

The most pressing changes come into effect from 1 April 2023. If you’re preparing an R&D claim, it’s vital to consider these amendments to the scheme.

• The uplift on actual expenditure will be reduced from 130% to 86%. At the same time, the payable tax credit for loss-making companies is reduced from 14.5% to 10% other than for ‘research intensive’ companies that spend more than 40% of their costs on R&D projects.
• Although this change isn’t defined yet in the legislation, projects in the field of pure mathematics will be within scope from April 2023.
• Allowable costs will now include the cost of accessing datasets, cloud computing and data hosting – an important update if your projects involve technology and software.
• For accounting periods starting on or after 1 April 2023, there’s a new requirement to notify HMRC of the intention to submit an R&D claim. This notification must be given within six months of the end of that period, unless these claims have been submitted in respect of any of the previous three years. Failure to submit this Advance Notification Form when required will render the claim invalid.

R&D changes from 1 August 2023

More updates to the scheme come into force from summer 2023, with changes applying from 1 August. It’s worth factoring these into your plans for R&D claims later in the year.

• Claims will need to be submitted digitally, and separate from the corporation tax return.
• The claim must include an additional information form, which in addition to providing reference numbers and contact details, will include a breakdown of costs split over various categories and projects.
• The form will need to be signed by a named senior official of the claimant company.

R&D changes from 1 April 2024

From April 2024, projects must be physically based in the UK to be included in R&D tax relief claims. This is aimed at focusing investment in the UK rather than overseas.

There are exceptions where work can only be carried out abroad – for example, where the required geological, environmental or societal conditions may not be present in the UK.

Talk to us about the changes to R&D tax claims

There are several changes being implemented, and HM Revenue & Customs (HMRC) has already started scrutinising claims more closely than usual.

It’s worth thinking about engaging an R&D specialist to give you specific advice on potential any claims. An R&D adviser can also help you compile the various documentation required, to minimise the chance of falling foul of HMRC’s requirements.