Changes to R&D Tax Credits – what can businesses expect?

In the 2021 Budget, it was announced that a number of potential changes to the UK’s R&D tax relief rules are set to commence on 1 April 2023. More recently draft legislation has been published giving more detail about what to expect from these changes.

Whilst some changes are relatively minor, others will have a significant impact on companies seeking to claim R&D tax relief, particularly those with overseas operations and new claimants. HMRC will also have new powers to reject claims and claw back excessive tax credits, meaning preparation will be more important than ever to ensure that claims are successful.

Below we set out some of the most important points for consideration:

Pre-notification

If you haven’t claimed R&D tax relief in the last 3 years, you will be required to pre-notify HMRC of your intent to claim within 6 months of the end of the claim period. This is likely to be an online digital notification, and it has been confirmed that claims which do not comply will be automatically rejected.

New compliance requirements

In future, R&D claims will only be valid if certain disclosures are made to HMRC. Whilst specific details of the necessary disclosures haven’t yet been released, they are likely to include:

• A detailed description of the R&D undertaken
• A breakdown of qualifying expenditure
• Details of any agent who provided advice
• Endorsement by a named senior officer of the claimant company

In addition, all claims will need to be submitted digitally.

If you do not currently submit a report with your R&D tax credit claim, you will need to start preparing and recording your R&D data and information so such a report can be prepared.

If you do submit a R&D report, you will still need to speak to your advisors, to make sure that they are making the necessary changes to ensure compliance.

New HMRC powers

The government have concerns over the validity of certain R&D tax credit claims that are being submitted and HMRC have recently hired an additional 100 inspectors in order to deliver more robust and consistent reviews of R&D submitted claims. HMRC will also be granted new powers to remove claims deemed to have been made in error.

Whilst the removal of a claim does not preclude further claims being made, this may mark a significant change in the way claims are handled by HMRC.

As such, it will be vital to submit claims well in advance of the submission deadline, and ensure that all paperwork is submitted alongside the tax return in a manner which is acceptable to HMRC.

Refocusing R&D in the UK

Expenditure on overseas subcontractors and agency workers will only qualify if it is absolutely necessary for work to be done overseas – some narrow exemptions will be available where factors such as geography, environment, population or other conditions that are not present in the UK are required for research.

Data and cloud computing

HMRC has now set out which data costs will qualify for relief. The provision of, access to, and maintenance of the following items should, in most cases, qualify for relief:

• Data storage
• Operating systems
• Software platforms
• Hardware facilities

Supporting you with R&D tax relief

R&D tax relief rules can be complex and the new legislation is likely to require significant changes to the way claims are currently made. Seeking advice early will be the best way to ensure that your company will continue to be able to access the generous reliefs.

Please contact you local Westcotts office for more information.