R&D tax credit changes from April 2023

Back at the end of 2020, we blogged about R&D tax credit changes that had come into force. Briefly, the government introduced a cap on the amount of R&D tax credits you could claim. For SMEs, that meant a maximum annual claim of £20,000, plus 300% of your total PAYE and National Insurance contributions for the period.

HMRC introduced the changes because it wanted to clamp down on R&D tax credit fraud. Indeed, there is a large number of ongoing R&D tax credit investigations, which we’ll cover in more detail in this post. Additionally, we’ll explain further R&D tax credit changes which will come into force from April 2023.

R&D tax credit investigations 

According to this PWC blog, the National Audit Office believes that over £300 million of R&D tax credits are claimed fraudulently or in error each year.

To help combat the problem, HMRC has recruited an extra 100 compliance officers to investigate possible R&D tax credit fraud. It also aims to tackle the issue via a ‘random enquiry programme’, meaning many claimants will face spot-checks.

In short, if you have claimed R&D tax credits, it’s a good idea to make sure you can provide supporting evidence in case of an inspection. Secondly, if you are planning to make a new claim, make doubly sure that it is valid. Our specialist R&D Relief and Tax Credit Service can help you make strong, compliant claims that cover all of your qualifying R&D activity and costs. Get in touch today for help and advice.

R&D tax credit changes from April 2023

It’s worth noting that there will be two changes to the R&D tax credit system from April 2023. The first change is particularly important, as it extends the scheme – meaning you may qualify for the first time.

1. Cloud computing, data and data analytics costs to be covered by the scheme for the first time. According to the Chancelloe, this is to “reflect how businesses conduct research in the modern world”.
2. R&D claims will be restricted to UK-only activity. Therefore, if you subcontract R&D to overseas firms, you will no longer be allowed to claim for this activity.
3. The new rates will be 20% for RDEC, 86% additional deduction for SME, and 10% for SME payable credit if loss making.
4. There is potentially additional tax relief for loss making R&D intensive SME companies also from 1^st April 2023. Those companies may be able to claim a credit worth £27 for every £100 they spend from 1^st April 2023 , if they spend 40% or more of their total expenditure on R&D.

Key takeaways

Government has clearly decided that the R&D tax credit scheme is too vulnerable to abuse. It is ramping up investigations, not only to claw back money to but get a clearer insight into where the scheme isn’t working properly. As a result, if you have claimed R&D tax credits, you are more likely than before to face a random investigation.

To modernise the scheme, from April 2023 the scheme will cover data and cloud computing costs. Many tech-focused firms have been lobbying for this change for some years. However, at the same time, the R&D tax credit system will become UK-focused: qualifying activities will need to take place in the United Kingdom.

If you would like any further information about R&D tax credit claims, please get in touch with a member of our team.