R&D tax reliefs are changing in April – Are you ready?

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Chancellor Jeremy Hunt announced many R&D tax changes in his Autumn Budget, including how the funding is allocated, which will be implemented in April.

He announced changes to the rates paid by the Research and Development Expenditure Credit (RDEC) for larger firms and the small and medium enterprises (SME) R&D relief scheme.

Under these changes, from 1 April, the RDEC rate will be increased to 20 per cent from 13 per cent.

Meanwhile, the SME deduction rate on qualifying expenditure will be reduced to 86 per cent from 130 per cent, and the SME credit rate decreased to 10 per cent from 14.5 per cent.

Changes also announced by the Chancellor in November, included new eligibility criteria from 1 April 2023.

Overseas R&D

Subcontracted R&D expenditure from outside the UK will no longer be eligible for inclusion in R&D claims from April 2024.

The aim of this is to bring more R&D activity to the UK and incentivise companies to move operations into the UK.

Cloud costs will now be eligible

Currently, costs relating to cloud-based technology can’t be included in an R&D claim.

From April 2023, cloud-based computing costs such as AWS will be eligible for inclusion.

Other changes in April include:

Claims must be submitted digitally
Claims must include additional information
Claims must be supported by a named officer of the company
Claims must include details of any associated agents

Pre-notification

From 1 April 2023, new rules for R&D Tax Relief claims will also require businesses to submit a pre-notification of their claim to HMRC digitally.

This applies if a business:

is a new claimant; or
has not claimed in the last three financial periods.

The requirement to pre-notify HMRC will affect any business that conducts research and development if they are eligible to claim under either the R&D Expenditure Credit (RDEC) or the SME R&D relief schemes.

Looking ahead, HM Treasury also launched an eight-week consultation on the design of a single, simplified R&D tax relief scheme earlier this year, merging the existing RDEC and SME R&D relief. If implemented, the new scheme is expected to be in place from 1 April