Find out the changes announced in the spring statement including additional support for R&D intensive businesses.
In his second fiscal event as Chancellor Jeremy Hunt made several announcements to the UK research and development (R&D) tax relief scheme in the spring statement, including an increased rate of relief for SMEs, where more than 40% of their spend is on R&D. Alongside delaying restrictions on overseas expenditure and maintaining 100% tax relief on capital expenditure.
The Chancellor commented “Despite raising revenue, the OBR has confirmed that these measures have no detrimental impact on the level of R&D investment in the economy. Ahead of the next Budget, we will work with industry to understand what further support R&D intensive SMEs may require.”
What Changes to R&D Were Made in the Spring Statement 2023?
With the changes set out in the 2022 Autumn Statement about to come into effect, we see modifications to both the SME scheme and RDEC effective from April 1s including:
A slew of legislative modifications took effect on April 1, 2023, with additional alterations anticipated during the Spring Budget. The Chancellor had hinted at the possibility of offering more substantial R&D tax credit relief to smaller research-focused companies, which had raised expectations. As predicted, the announcement was made, revealing an improved credit system that enables qualifying small or medium-sized enterprises to claim a credit worth £27 for every £100 they spend if they allocate 40% or more of their total expenses to R&D.
It has also been advised that the previously announced restriction on overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a proposed merged R&D relief.
The government’s consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes closed on 13th March. The government is currently considering the responses and no decision has been made. The government intends to keep open the option of implementing a merged scheme from April 2024.
The government will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the summer, with a summary of responses to the consultation.
What else is changing for R&D Tax Credits beginning on or after 1st April 2023?
Cloud computing and data costs now eligible for relief
The government has confirmed the extension of the scope of qualifying expenditure to include costs of datasets and cloud computing. The definition of R&D for tax purposes is also being extended to include advances in pure mathematics.
Pure mathematics can now qualify as R&D
The change allows projects that are related to solving pure mathematical problems to qualify for relief under the R&D tax scheme.
Pre-notification of claim
From April, companies considering applying for R&D tax relief will need to give advanced notification of their intention to claim within six months of the period-end for which they are planning to submit a claim. Companies that have already submitted a claim on any of the three previous calendar years will not need to give prior notification.
The claim submission process
All claims submitted for accounting periods starting on or after 1st April 2023 will have to be submitted digitally and include a description of the R&D, a breakdown of qualifying costs, details of any R&D agent who has advised on the R&D claim and be signed-off by a senior officer of the company.
What does it mean if you’re currently processing an R&D Claim?
If you're in the middle of processing an R&D claim, the current R&D tax relief landscape may seem more complex than ever before. With varying rates, expanded eligible activities, and new categories like R&D Intensive, as well as pre-notification and new processes that require senior officer sign-off, navigating the terrain can be challenging.
You can be confident that the team at Zest R&D has the experience, resources and expertise to support you and your clients through these changes with the end goal of a robust, accurate and comprehensive claim.
If you have any questions or would like to share your views and comments on the above proposed changes to the scheme, please contact us. We’d be happy to discuss your situation and provide advice tailored to your needs.
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Costs involved in R&D are tax deductible and there are two ways in which R&D costs can reduce a companies Corporation Tax liability. Firstly – with the usual deduction of 100% of the cost from your companies profits. In addition, the R&D Tax Credit scheme allows a further deduction of 130% of eligible R&D costs, […]