Keeping on top of the changing rates of Research and Development (R&D) relief and the corresponding application processes is a complex and intensive task.
However, it is vital that businesses involved in scientific and technological innovation stay abreast of these issues to remain compliant and continue to get vital tax relief for their hard work.
Over the years I have seen numerous revisions to the application process, relief rates and regulations.
Changes in legislation, however, do not alter the fact that R&D relief remains a vital part of the financial success of many companies, particularly those involved in renewable energy projects and businesses operating in the agricultural industry. As well as being a huge benefit to the UK economy and scientific endeavours in general.
In this article, I will go over some of the more recent changes to the R&D tax relief scheme and explain how they might affect your business.
Current R&D relief rates
During 2023, the rates of R&D tax relief changed significantly, so it is important to familiarise yourself with the new claimable expenses and how much your business could receive.
As of 1 April 2023, the rates of tax relief for the Small-to-Medium Enterprise (SME) R&D tax credits scheme are as follows:
- Profitable firms can now claim 86 per cent expenditure relief.
- Loss-making firms can claim 10 per cent (14.5 per cent where they can prove to be an R&D intensive company).
For the Research and Development Expenditure Scheme (RDEC), the rates of relief have risen to 20 per cent regardless of profitability.
The SME R&D scheme has, therefore, seen a general decrease in claimable expenses, while the RDEC scheme has seen an overall increase.
This means that, whilst you are still able to claim significant amounts of tax back for your R&D work, if you are an SME relief you receive is likely to be diminished.
Managing the changing tax relief rates is important for understanding your future tax liabilities and, in turn, profitability and cash flow.
Changes to the application process
A significant change in the R&D landscape has been the inclusion of an added form in the application process, called the Additional Information Form (AIF).
Failure to submit this form will mean that your application is rejected out of hand, and you will be unable to claim any R&D tax relief for that year.
Between 8 August and 3 September this year, almost half of all claims received by HM Revenue & Customs (HMRC) failed to include the AIF and were rejected.
The AIF asks businesses to clearly explain their R&D project, covering what they aim to achieve, how they plan to do it, any tech challenges they face, and what's new or innovative about it, so that HMRC can accurately judge if it qualifies for R&D tax credits.
Adapting to this new requirement has been a challenge for many businesses but with an experienced accountant’s help, you can craft the perfect AIF form and ensure that you receive the R&D credits your business deserves.
Changes to eligible activities
The UK Government updated R&D tax guidelines to include machine learning and cloud computing costs, as well as advancements in pure mathematics when linked to software development.
While the cost of acquiring datasets is now a qualifying expense, these guidelines are still under review, with expectations that HMRC will adopt a more practical stance in the future.
In the renewables industry, there is also a selection of activities that are eligible for R&D tax relief.
- Reducing plant emissions to comply with new legislation.
- Creating new/improving existing renewable energy designs to increase power output.
- Advanced groundwork preparation for the installation of renewables infrastructure.
- Improving anaerobic digestor processes for increased output.
- Enhancing the yield of solar panels.
- Experimenting with materials to make renewable solutions safer, faster, greener, or cheaper.
- Developing energy from waste technologies.
In agriculture, the following projects are now considered eligible for R&D tax credits:
- Improving yields through methodical experimentation, e.g., animal nutrition or crop growth.
- Creation of new pesticides, fertilisers, and chemicals.
- Experimenting with renewable energy technology.
- Automated farming processes through AI.
- Alternative farming methods, such as advanced vertical farming.
If your company is involved in any of the above, you could be eligible for R&D claims on your tax returns.
How Scholes can help you apply for R&D tax credits
During my time at Scholes, we have helped numerous clients with their R&D tax credit applications, helping them to obtain hundreds of thousands of pounds in relief.
This puts us in the unique position to be able to provide expert advice in this field, including support with the most recent changes.
In addition, our expertise in R&D for agricultural and renewable energy companies means that we can walk your team through the process of claiming expenses, financing, and grants across a wide range of areas – not just R&D.
Please get in touch if you have any questions or queries regarding R&D and your tax relief options or speak to us if you would like Scholes to take care of your R&D tax credit application.