Changes to R&D tax credits 2023 – an update

Back in November 2022, Chancellor Jeremy Hunt announced a number of changes to R&D tax credits and expenditure credits. We blogged about them here.

Since then, more details have emerged about the changes to R&D. In this post, we provide you with an update so you can understand what the reforms mean for your business.

Additional R&D information

The first thing you need to know is that, if you submit an R&D claim on or after 1st August 2023, you will have to fill in an additional HMRC information form. You must do this, regardless of the period you’re claiming for.

The extra information that’s required includes the following:

• A full description of the R&D undertaken
• A breakdown of qualifying costs
• Details of your accountant / R&D specialist

The form also needs to be signed off by a senior officer of the company.

As a result, if you need to make an R&D claim in the near future, it will be much simpler to submit it before 1st August 2023.

Overseas expenditure

One of the reforms means that expenditure on overseas R&D will generally not qualify for tax relief. The general exception to this is when the conditions required for the R&D don’t exist in the UK and it would be unreasonable to replicate them here.

This R&D change was due to come into force on 1st April 2023. However, it has now been delayed until 1st April 2024.

Pre-notification of R&D claims

If a claims period begins on or after 1st April 2023, you’ll need to pre-notify HMRC. You should do this within six months of the of the end of the R&D claim period. This must be done digitally. That said, you don’t need to pre-notify HMRC if you have already made a claim in one of the previous three accounting periods.

Changes to R&D tax credit rates

For expenditure incurred on or after 1st April 2023, the RDEC standalone credit for large companies will increase from 13% to 20%.

After the same date, the tax relief for SMEs will reduce from 130% to 86%. The surrenderable losses credit rate will also decrease from 14.5% to 10%.

There is an exception to the latter. If your SME can show that 40% or more of its total expenditure relates to R&D activity, the 14.5% credit remains. Unfortunately, the legislation to make this happen has not yet been published. This means you’ll either have to wait to submit your claim, or claim at 10% before amending the claim after the legislation is in place.

New allowable R&D claims

After 1st April 2023, expenditure relating to pure mathematics, data licensing and cloud computing costs of an R&D nature will be allowable.

Need help with the changes to R&D tax credits?

Many companies don’t claim R&D tax credits because they don’t realise they are eligible. Even if you are eligible, you may well benefit from our R&D relief and tax credit service. Not only can we help you identify eligible expenditure, but can also advise on ways of combining R&D tax credits with R&D grants from Innovate UK. Get in touch today to find out more.

Further info: Claiming R&D tax reliefs