SME claimants have been able to claim an additional 130% tax deduction on qualifying R&D expenditure, but from 1 April 2023 this will reduce to 86%. Taking into consideration the increase in corporation tax to 25% which also happens on 1st April, and this means the additional tax saving on £100,000 of R&D expenditure will reduce from £24,700 to £21,500
For loss making companies the impact is more significant, as the surrenderable R&D tax credit is changing from the current rate of 14.5% to 10%. Based on qualifying R&D expenditure of £100,000, this will reduce by nearly 55% from £33,350 to £18,600.
This is likely to have an impact on many start-up businesses who are reliant on R&D tax credits to assist with their cashflow during the first few years of development. However, on the other hand, larger companies claiming under the RDEC regime are set to benefit from 1 April 2023, whe the RDEC rate increases from 13% to 20%. This means that that when spending £100,000 on R&D, the additional tax saving will increase from £10,530 to £15,000.
The government have confirmed the rate changes are a move towards a single simplified R&D scheme, which will make the UK R&D scheme more competitive internationally.
Previous changes still apply
In addition to the above, previously announced changes to R&D tax credits are still expected to apply from 1 April 2023. These include:
Overseas workers: At present companies can claim for subcontractors and externally provided workers carrying out activities overseas. From April, this will no longer apply unless it is impossible to carry out the R&D activities within the UK. This could be due to geographical, environmental or social conditions, or legal or regulatory requirements.
Data and Cloud costs: Cloud computing costs should be eligible for relief from April, with the following new categories of expenditure being introduced:
- Licence payments for datasets.
- Cloud computing costs that can be attributed to computation, data processing and software.
Payments for datasets will only be eligible if used for R&D purposes. So relief will not be available if the datasets are resold, or have a lasting value to the business following completion of the R&D project.
Further compliance requirements
Looking to the future, claims will need to be endorsed by a named senior officer of the company, together with details of any agent who has assisted with the R&D claim. Also, companies who have not submitted a claim within the preceding three years, will need to notify HMRC in advance of their intention to submit an R&D claim. This pre-notification will have to be submitted within six months of the end of the period to which the claim relates.
There has been ongoing consultation taking place with regards to the R&D schemes and this is set to continue, so what is in no doubt is that there may well be more changes likely in the future.