R&D tax relief changes – everything you need to know for 2023

As the deadline for tax return filing approaches, many firms may be preparing their Research and Development (R&D) Tax Relief claims for the first time. Despite some general knowledge of the process, there are various factors taxpayers should consider when filing their R&D tax credit claims. 

We discuss below how companies across every industry can effectively prepare and meet the deadlines for R&D tax credit claims for the years 2020-21 and 2021-22, as well as give an update on the key R&D tax relief changes coming this year.

R&D tax relief scheme to be modified starting April 2023

In April 2023, the R&D tax relief program will see significant changes as outlined in the Chancellor's Autumn Statement of November last year. The rates for both existing R&D schemes will be adjusted, following Jeremy Hunt's statement which indicates a shift in the Treasury's strategy towards investing in UK innovation.

RDEC large company scheme

The RDEC scheme is available to companies who employ more than 500 staff or have a turnover of more than €100 million to claim a tax credit of 13% on qualifying expenditure incurred until March 31, 2023. 

However, starting April 1, 2023, the rate will increase to 20%. This credit can be used to offset any corporation tax liability. If there is any unused credit after clearing the current year's corporation tax, it can be used to offset corporation tax liabilities from other accounting periods for the company or other companies in the group. Any remaining credit can then be applied to other tax liabilities, such as VAT, and any remaining credits can be taken as a payable cash sum.

SME R&D tax relief scheme

The SME relief scheme allows qualifying companies to claim tax relief at 230% on qualifying expenditure up until 31st March 2023, after which time the rate will reduce to 86%.

This will normally be largely made up of staff costs, including employer’s national insurance and pension contributions but can also include material, utility, and software costs, as well as elements of subcontractor and agency worker fees.

The drop in enhanced relief will be slightly mitigated by the increase in the corporation tax rates, for companies with profits over £50,000, which is increasing from 19% to 25% from the same date.

R&D Claims Must be Submitted With an Online Additional Information

Changes to the submission process are also to be expected, starting August 2023, HMRC will update the way R&D claims are submitted. The new submission process will require claimants to:

• Submit a digital form alongside their corporation tax return when claiming R&D tax relief.
• The form will include a summary of the cost categories included in the claim for each project.
• A description of the R&D and how it advances the level of science or technology in the field.
• A named senior officer of the company – this could be a director.
• Details of any advisor you’ve used to help you with your claim.

Pre-notification of R&D Claims will Be Required

Applicants must pre-notify HMRC of a claim they intend to make within 6 months from the end of the financial period to which the claim relates. The only exceptions will be if a claim has been made in one of the prior 3 calendar years, or if the claim is submitted before the 6-month deadline. This notification will be required for claims in accounting periods starting from 1st April 2023.

R&D Claims Must be Submitted With an Online Additional Information

What else is changing for R&D Tax Credits from April 2023?

Several other important changes to R&D Tax Credits were announced in last year’s Autumn Budget including: 

• Cloud and data costs are allowed as qualifying R&D expenditures
• R&D to be expanded to include pure mathematics research
• Restrictions on overseas sub-contractor costs (with exemptions if “it is unavoidable for the R&D activity to be undertaken overseas.”)

When is your R&D Tax Return Deadline in 2023? 

If your company has been conducting qualifying R&D and has not yet claimed R&D tax credits, it is possible to make a claim for a past tax return period. Companies have a 24-month window to make a retrospective claim for R&D tax credit relief for any accounting periods ending in the last two years.

For example, a company with an accounting period ending on March 31st can make a claim for R&D conducted between April 1st, 2020 and March 31st, 2021 by March 31st, 2023. 

Similarly, R&D conducted between April 1st, 2021 and March 31st, 2022 can be claimed by March 31st, 2024.

It's worth noting that different companies have different accounting periods. If your company has a June year-end, the deadline of June 30th, 2022 applies to claim R&D tax credits for R&D activities conducted between July 1st, 2019 and June 30th, 2020. 

What steps can I take to ensure compliance in my R&D Tax Credit claim?

With HMRC's increased focus on compliance, claiming R&D Tax Credits is becoming more challenging for businesses. The claims process now requires endorsement by a senior officer and the risk of enquiries by HMRC is higher. To avoid these challenges, it is essential to work with a reputable provider who can ensure compliance throughout the process.

The team at Zest R&D specialise in helping innovative companies across the UK put together compliant claims. Our team of experts can guide your business through the changes and help you maximize the benefits you are eligible for.

Don't let the changes in compliance regulations hold back your R&D Tax Credit claim. Contact us today to speak with a specialist and find out how we can help your business."