The main changes to be aware of are:
- Rate changes
Perhaps the most headline grabbing of the changes introduced, the amount of relief granted to SMEs will reduce for all expenditure incurred on or after 1 April 2023.
The enhanced deduction will decrease from 130% to 86% and the cash credit rate will decrease from 14.5% to 10%. In real terms, this means that R&D tax credits will reduce from 33p to 19p for every £1 spent.
In contrast, for claimants under the Research and Development Expenditure Credit (RDEC) Scheme, the credit rate pre-tax has increased from 13% to 20%.
- Expansion to heads of qualifying expenditure
The categories of qualifying expenditure have been expanded to include cloud computing costs and data licensing. Costs incurred under these two categories that are directly involved in R&D can be included in the claim. This further supports the technology sector and will be a welcome addition to many software R&D claims.
- Refocusing to UK based R&D
From 1 April, expenditure incurred by companies on subcontractors or externally provided workers will generally only be eligible if the work is performed in the UK. Overseas activities will only qualify in extremely limited circumstances.
- Advance notification
Companies who have not made a R&D claim in the last three accounting periods must notify HMRC of their intention to make a claim within six months of their year-end when this falls on or after 1 April 2023. This notification will be made online although the exact mechanism has not yet been confirmed by HMRC.
- Supporting documentation
All R&D claims must be made digitally on the Corporation Tax Return. The claim must be supported by evidence which includes an overview of how the costs were calculated and how the company meets the R&D criteria. The report must be approved and signed by a senior officer at the company and details of the R&D agent completing the claim must also be provided.
At Kilsby Williams we are well placed to meet these changes. We have been operating the majority of the new administrative requirements for a number of years in order to best protect our clients’ R&D claims.
Lucy Lloyd, our R&D specialist, is dedicated to providing advice and assistance to all companies within the claim process. Lucy’s experience is the best way to protect your business to ensure you have obtained clear advice on whether or not your company qualifies for relief and, if so, that all eligible costs have been included.
Please contact Lucy Lloyd at 01633 653177 or lucy.lloyd@kilsbywilliams.com should you wish to discuss this in more detail.
