Following the March 2023 Budget, there have been some changes made to claiming your Research and Development (R&D) tax relief.
If you are a business which makes use of R&D tax relief, ensure to familiarise yourself with the changes made, which will come into effect starting on 1 April 2023.
(4-minute read)
We will cover:
- Available Research and Development (R&D) Schemes
- The new requirements: R&D submission notifications and the Additional Information form
Research and Development tax relief schemes
Innovation and research are a key driver of economic growth in the UK.
Increasing investment into a company’s R&D is encouraged by the government by providing businesses an opportunity to claim tax relief.
There are two main schemes available, and each depends on the size of your business.
The SME scheme is available to small and medium businesses and provides a deduction to your qualifying revenue spent on R&D.
The RDEC scheme is available to larger companies, and instead acts as a taxable receipt in calculating trading profits.
For more information on how your company can benefit from these schemes, please visit the HMRC website here.
New requirement to submit R&D notification
The first change, which takes effect on 1 April 2023, is the Advance Notification Rule.
In this form, you must make HMRC aware you intend to claim R&D Tax relief.
This form will apply if you are a new company, or a company which has not made a claim for three years with accounting periods commencing on or after 1 April 2023.
This claim is made any time between the start of the accounting period, up to 6 months after the end of the accounting period.
If the Advance Notification Form is required, but is not submitted, the R&D tax relief claim will be invalid and removed by HMRC as an error.
When submitting an Advance Notification form, you must submit a summary of the high-level planned activities, to demonstrate the project meets the standard definition of R&D.
You can find the Advance Notification form here.
R&D Additional information form and its importance
The second change, which is due to take effect on 1 August 23, is the Research and Development tax relief Additional Information Form.
The Additional Information form must include detailed accounts of the Research and Development costs, as well as a description of each category.
Each of these categories must then be signed off and verified by a named senior officer of the company.
The form must be completed before the company’s corporation tax return, or the claim on the tax relief will not be processed.
Furthermore, if the company had any external advice when filing the Additional Information Form, they must include that party’s details on the form.
Why are these changes being made?
Both R&D tax relief schemes – SME tax relief and RDEC – incentivise the investment into Research and Development for a company.
The relief gives generous support to a business when investing in Research and Development.
HMRC believes that furthering R&D in all manners of businesses will help to better develop the UK’s economy.
Due to these incentives, businesses have submitted false claims to make use of the generous tax relief allowance the schemes provide
The introduction of both an advance notice, and an Additional Information Form should ensure there are less false claims.
Whilst this does mean more work on the behalf of the business submitting these claims, it gives peace of mind that all claims made are in fact genuine claims.
Example
Let’s look at an example that illustrates how the latest changes might affect your company.
Let’s consider a UK company called Techno Innovators Ltd, with a year-end of 31 December. Historically, the company has been filing its corporation tax return and R&D claims in August each year, which is approximately eight months after the end of the financial year.
Here is a breakdown of how the R&D changes will impact Techno Innovators Ltd’s reporting obligations in the coming years:
- For the accounting period ending on 31 December 2022:
➤ No R&D notification is required (since the accounting period started before 1 April 2023).
➤ However, if the R&D claim is submitted on or after 1 August 2023, an additional information form will be necessary. - For the accounting period ending on 31 December 2023:
➤ No R&D notification is required (since the accounting period started before 1 April 2023).
➤ Nevertheless, an additional information form will be necessary. - For the accounting period ending on 31 December 2024:
➤ A R&D notification will be required if the previous R&D claim was submitted after 30 June 2024.
➤ Additionally, an additional information form will be necessary.
Conclusion
These changes are important to consider for both the near and distant future, if you are a company who makes use of either of these R&D tax relief schemes.
The changes will affect any claims you will make following April and August of 2023.
Please ensure to read the complete document provided by the HMRC here.
If you’re still looking for further clarification on what these changes could mean for your business, don’t hesitate to contact us.
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