Research and Development Tax Credits (R&D) were subject to several changes as of April 2023 and more are on the way.
R&D is something we deal with on a daily basis, so we thought it’d be helpful to summarise them in one place for you.
Why Did the Changes Happen?
In short, the changes are mainly centred around compliance, correction of anomalies and preventing abuse of the scheme.
Sadly there are companies out there who have taken advantage of the historically relatively lax approval process.
Plus plenty of companies who submit claims without the help of a regulated, qualified accountant or tax team. As you can imagine, unregulated + unqualified = risky and potentially false claims.
April 2023 R&D Changes
Tax Credit Rates
The enhanced expenditure and tax credit rates have changed from 1 April 2023.
| Scheme | Rate name | Pre April 1st 2023 | Post April 1st 2023 |
| SME | Enhanced Expenditure | 130% | 86% |
| SME | Tax Credit | 14.5% | 10% |
| SME (intensive) | Tax Credit | 14.5% | 14.5% |
| RDEC | Taxable Credit | 13% | 20% |
If the R&D qualifying expenditure is equal to or greater than 40% of the company’s total expenditure in the period (classed as R&D intensive), then the SME tax credit will remain at 14.5%.
Loss making SME (non-intensive) that has an enhanced expenditure deduction of 86% and Corporation Tax of 25% would receive 18.6p back per £1 spent. E.g. Expense of £100 x 186% deduction x 10% tax credit = £18.60
Loss making SME (intensive) that has an enhanced expenditure deduction of 86% and Corporation Tax of 25% would receive 26.97p back per £1 spent. E.g. Expense of £100 x 186% deduction x 14.5% tax credit = £26.97
RDEC company that has an RDEC credit rate of 20% and Corporation Tax of 25% would receive 15p back per £1 spent. E.g. Expense of £100 x 20% credit rate – 25% CT = £15
More Claim Requirements
From August your claim will need to be endorsed by a named senior officer at your business and you’ll need to name any third-party advisors who’ve worked on the claim.
You’ll need to submit quite a significant amount of additional information too on a separate form before your corporation tax return is completed. This includes a breakdown of qualifying expenses for:
- Extrenally provided workers
- Software
- Consumables
- Employee costs
- Data licenses
- Cloud computing service
Along with detailed descriptions of:
- Your projects
- The field you operate in
- What you planned to achieve and/or advance
- Technical uncertainties and how you overcame them
There’s a few other things they will be requesting like your SIC code, which should fall in line with something HMRC expect to have R&D going through, PAYE numbers and contact details. The extra info will help HMRC quickly identify fraudulent or abusive claims, but it will mean that claims take much longer to fill out and that the full claim process takes longer in general.
Penalties and Compliance
This is definitely the area causing the most concern for many. HMRC are being rigorous with claims, and you can be penalised for an honest mistake in the same way you would be for something deliberate.
If it’s concluded that you haven’t given proper care and attention to your claim, your penalty could be as much as 70%-100% of the tax lost. If you cooperate, it’s likely that the amount will be dropped.
If you’re forthcoming with any errors and submit them before HMRC spot them, your penalty could be far lower or even non-existent, especially if you’ve submitted the claim with an accredited and regulated firm.
Qualifying R&D Costs
As of April, R&D qualifying costs now include some costs associated with cloud software and data licenses. Historically projects based on advances in pure mathematics were unable to claim R&D, this has now changed and you’re able to claim.
Are R&D Claims Still Worth it?
Yes of course they are, just keep in mind that they’re now more regulated and time consuming. We have oversight of a lot of claims over several sectors and expert areas, however we still rely on our clients to give us factual and accurate information regarding advancements and uncertainties.
If you want to submit a R&D claim, do your research and speak with someone who knows what they’re talking about before you do anything. Do your due diligence too, if it seems too good to be true, it probably is.
Need Help?
We know there’s a lot to wrap your head around. Feel free to get in touch, we have assisted with countless successful R&D claims, we’re regulated, and we have a team of qualified tax accountants ready to help.
