The research and development (R&D) scheme has changed numerous times over the last few years. This tax year is no different.
As your company seeks to reclaim some of your costs and lower your tax bill, it is important to know where things stand, both in terms of how much you can claim back and how.
Here’s everything you need to know about the recent changes to R&D.
Main reforms
In November 2022, Chancellor Jeremy Hunt announced an increase in the research development expenditure credit (RDEC) from 13% to 20%, making the scheme more generous for eligible companies.
However, loss-making SMEs found out that the payable tax credits would be cut from 14.5% to 10%. The enhanced deduction rate was also slashed from 130% to 86%.
The latter soon changed, though, as, during the Spring Budget, Hunt returned the SME credit rate at 14.5% for loss-making companies that spend at least 40% of their total expenditure on R&D.
Companies claiming both RDEC and SME credits can now include expenditure on:
- data licensing
- cloud computing
- mathematical advances
Before the Spring Budget, the Government launched a consultation on proposals to merge the schemes. The outcome is yet to be confirmed.
More detailed claims
To cut down on fraudulent R&D claims, the Government now requires companies to provide extra supporting information in their reports to HMRC.
Before filing, companies must notify HMRC if they intend to make a first-time claim or if the company has not claimed in the last three years. The company must also appoint an R&D representative to deal with HMRC throughout the process.
Claimants must provide additional details to HMRC, including:
- the total R&D project costs
- how many workers were part of the project
- details of the R&D agent
The appointed company officer must approve any claims. If the additional information section of the R&D claim paperwork is incomplete, the claim will be invalid.
Subcontractors
Claiming for contracted work has also changed as of the start of this tax year. Under the new R&D regime, works carried out outside of the UK will no longer be eligible for R&D relief, depending on the circumstances.
The only time work may be eligible for relief is if the company cannot conduct the activity in the UK due to the working conditions.
For example, if a company is researching ways to create a volcanic heat-resistant material, it would be impossible to do so in the country. Therefore, a company conducting R&D abroad for these purposes may be able to claim.
Looking to claim?
Due to the shifting nature of R&D tax credits, knowing what you need to disclose is essential before starting a claim.
Having a firm with years of experience dealing with the system can only work in your favour. We can be that firm.
We will help you calculate your eligible costs, organise your claim and see it through to the end. Make your R&D project work for you.
Get in touch to discuss your R&D claims.
