Major changes to the R&D tax relief regimes are set to come into effect from 1 April 2023, including the following:
The existing categories of qualifying expenditure are set to be expanded to include certain expenditure on data sets and cloud computing. This will be welcomed by many companies, especially those working in the tech sector and other users of cloud computing services.
Relief will be restricted to R&D activities 'undertaken in the UK' and 'qualifying overseas expenditure'. Expenditure on overseas R&D activities that are subcontracted or carried out independently may only qualify where the activities have been undertaken outside the UK due to the necessary geographical, environmental or social conditions, or legal or regulatory requirements, not being present in the UK. Cost or the availability of workers are specifically excluded as reasons for undertaking R&D work overseas.
Major changes will be made to the R&D tax relief claim submission process, including:
- claims must be made digitally;
- the categories of qualifying expenditure incurred should be disclosed along with details of the R&D activities;
- claims must be endorsed by a named senior company officer;
- companies intending to claim for the first time - and those that have not claimed in relation to any of the three previous accounting periods - will be required to notify HMRC within six months of the end of the relevant accounting period;
- the details of any agent who has advised the company in making the claim must be provided.
The proposals are set to be enacted in the Spring Finance Bill 2022-23, in the spring of 2023.
Rates of relief
The rates of relief on qualifying expenditure incurred from 1 April 2023 onwards will be as follows:
- SME R&D scheme - the additional deduction will decrease from 130% to 86%; the SME payable credit rate will reduce from 14.5% to 10%
- RDEC scheme - the RDEC rate will increase from 13% to 20%
Since the SME scheme was launched in 2000, the rate of relief for R&D has only ever gone up, so the reductions effective from April 2023 mark a major reversal in the government's 'direction of travel' as it seeks to tackle perceived abuse of the small company scheme.