142. R&D tax credits are changing – what you need to know now

Back in the autumn of 2022, Chancellor Jeremy Hunt announced his financial plans for the UK economy in 2023 and beyond.

The proposed changes, set to come into force in 2023, seek not only to reduce the potential for error and fraud in Research & Development (R&D) claims but also to ensure the UK remains at the forefront of scientific and technological innovation.

R&D rates are changing

The rate changes, which affect both SME and RDEC, are as follows:

  • for expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate for large companies claiming R&D relief will increase from 13% to 20%; 

  • the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%; and 

  • the SME credit rate will decrease from 14.5% to 10% 

These reforms continue a long-upheld series of improvements to the generousness of the government’s large-company RDEC scheme; the changes also appear to indicate the first step towards what the Chancellor has called ‘a simplified, single RDEC-like scheme for all’.  

What do the new R&D numbers mean?

Some potential scenarios based on the amended rates include: 

  • an SME with large profits can expect the rate of its relief to decrease from 25%-22% while an SME with small profits will receive a benefit rate of 16% instead of 25%; 

  • a loss-making SME receiving a cash-credit can expect its rate of relief to decrease from 33% to 19%; 

  • an SME claiming a cash-credit in a break-even profit position can expect to see its benefit rate decrease from 19% to 9%; and 

  • benefit rates for RDEC-claimant companies will increase by between 4%-5% depending on their profits and tax position. 

Further changes will be discussed and reviewed in the coming months. This will determine what sort of support UK SMEs and larger business can expect.

What legislation changes can I expect in 2023?

Legislation amends that apply to accounting periods beginning from 1st April 2023 include:

  • Qualifying expenditure extension – RDEC and SME relief schemes will be expanded to include cloud computing and pure mathematics.

  • Amendments to restrictions on overseas subcontractors – The UK Government now recognises unique projects, where it is necessary for businesses to outsource work to other countries as part of R&D.

  • New streamlined administration processes – This will refine the application and handling process, combat errors and minimise fraud.

Update Sept 23: There are 2 key process changes as part of the streamlined administration to be aware of.  The first is the requirement to provide advance notification of your claim. The second is completion of an Additional Information Form. Talk to your specialist for more details.

Why is there a delay in R&D tax claims?

As part of this renewed effort to make sure R&D tax credits are being properly distributed, HMRC are trying to tackle irregularities in claims by carrying out enhanced compliance checks. From what we’ve seen so far, this is typically on claims below £50,000 and particularly within the software sector.

This extra scrutiny has caused delays across the service with claimants having to wait longer to receive their R&D tax benefit.

Making the most of your claim

R&D is a form of self-assessment. You do not need to work with an R&D tax adviser to submit a claim but doing so can hugely increase the robustness of your submission and ensure you are getting the full amount you are entitled to.

R&D claim preparation is a technically demanding process, and, as specialists, advisers are key in helping businesses to quantify, to collate and to maximise R&D claims.

Update Sept 23: Especially as we now know there are 2 key process changes to be aware of.  The first is the requirement to provide advance notification of your claim. The second is completion of an Additional Information Form. Talk to your specialist for more details.

At Tectona, we see the best service that we can give our clients in this area is to introduce them to someone we know will give them support where they need it most. We have partnered with Kene Partners who have the right team and the right expertise to deliver the right solution, on time, every time.

Kene Partners have the technical knowledge, expertise and key relationships with HMRC to make sure you receive the full amount of benefit you are entitled to.

And the benefit of this partnering relationship is that you can access a fast-track assessment of your potential to claim R&D.

What could your claim be worth? To book your free consultation, visit Kene.Partners

About Tectona

Tectona Partnership helps business owners sleep at night by embedding one of our 17 commercially minded finance directors in your management team.

Very often, a part time solution is the most effective solution.

We make sure you have the necessary management information and strategic insight to make informed decisions and reduce risk; and we will absolutely tell you what you need to know, when you need to know it.

Posted in Uncategorized.