R&D – The Summarised Update

Any company looking to claim R&D at the moment may understandably be bombarded and overwhelmed by the information being released. What’s new and when do I have to do what? The following article gives a condensed summary of recent and upcoming changes.

A new Additional Information form is being launched. This was due to take effect from 1 August 2023, however, this will now be effective from 8 August 2023. This will be an additional time-consuming element of making an R&D claim, if this is not submitted before the Corporation Tax Return, the claim will be rejected.

For periods on or after 1 April 2023, a company must pre-notify HMRC of its intention to make an R&D claim. This will apply in the following cases:

• • You are making a claim for the first time.
  • You have claimed for the previous tax year, but you did not submit that claim until after the last date of the claim notification period (the claim notification period ends 6 months after the end of the period of account).
  • Your last claim was made more than 3 years before the last date of the claim notification period.

HMRC has published draft legislation this week, on the merging of the R&D tax relief schemes (that is merging the SME and RDEC (large company) schemes). Here is what it said:

• This is planned to be implemented in April 2024.
• The legislation establishes a single R&D relief, delivered in a similar way as RDEC (Research and Development Expenditure Credit). However, it’s planned to differ in that, in general, a company will be able to claim for payments made to subcontractors, as is currently possible in the SME scheme.
• There is a more generous PAYE/NIC credit cap included.
• It does, however, include the restrictions on relief for overseas expenditure that will come into effect from April 2024.
• There remains the plan to introduce additional relief for loss-making R&D-intensive SME companies (explored in previous insights).
• This is not final until a final decision is made at a future fiscal event.

Ignoring the above draft legislation for the moment, there are rate changes that have come into force since 1 April 2023:

• SME enhancement rate has fallen from 130% to 86%.
• SME tax credit rate has fallen from 14.5% to 10% (unless for R&D-intensive companies).
• RDEC payable credit has increased from 13% to 20%.

HMRC is tackling the fraud and abuse of the relief by raising in-depth compliance checks, and seeking to decline claims. The interpretation of the guidelines has been much harsher, and the case workers are not always fully trained in the relief, making defending a claim much harder. We urge anyone seeking to make a claim to do so with a robust report, a reputable advisor, and all elements of the claims supported by clear evidence.

HMRC have the ability to raise penalties where they deem the claim to have been made inaccurately carelessly and deliberately etc, and they are actively seeking to do this. You will still be approached by advisors promising the earth, but as Directors of a company, you must consider whether a claim appears sensible, and ultimately can you defend it further down the line.

There is a great deal of information to take in with regard to R&D at the moment, but it’s not all doom and gloom. If you would like to discuss these changes in greater detail or ask any questions about your circumstances, please do not hesitate to contact Gina Gardner, gina.gardner@ballardsllp.com

Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.