As the R&D landscape evolves, any SME claiming R&D tax relief must be aware of the continuing raft of changes. Colin Barr, Commercial Director at GovGrant, explains everything you need to know about current and future updates and what these could mean for you
New rates for R&D expenditure incurred on or after 1 April 2023
The new rates announced in the Autumn Statement 2022 will come into effect for R&D expenditure incurred on, or after, 1 April 2023. The SME scheme has effectively had a cut of a third through the reduction to the enhanced rate moving from 130% to 86% and the tax credit reduction to 10% (from 14.5%) unless your business qualifies as an R&D intensive business. This is defined as a business with at least 40% of their total expenditure being on R&D, in which case the rate remains at 14.5%.
Businesses will need to ensure the new rates are applied appropriately, especially if you have an accounting period that straddles the change in rates.
Advanced notification requirement
For accounting periods on, or after, 1 April 2023 there is a new advanced notification requirement. Initially there was some confusion about the circumstances that required advanced notification, but HMRC have now clarified the rules.
Claimants need to notify HMRC of their intent to claim within 6 months of their Accounting Period End, using a new digital form. This will be required for all first time claimants, or where the company has not previously claimed R&D tax relief within any of the 3x previous accounting periods, generally speaking.
New requirement for Additional Information form
As part of HMRC’s focus on the R&D tax relief scheme, an Additional Information Form (AIF) was introduced and is now a statutory requirement to complete for all R&D tax relief claims. The AIF must be submitted before filing your company’s Corporation Tax return.
The AIF has been mandatory since 8 August, however HMRC has calculated that almost half of all claims that they received between 8 August and 3 September were submitted without the required AIF. This immediately makes those R&D tax relief claims invalid.
HMRC publishes new, draft legislation – including a single R&D scheme option
On 18 July, HMRC published draft legislation on the proposed design of a merged scheme for technical consultation. The timing of this was driven by the consideration that this merged scheme could be applied from April 2024.
The draft legislation establishes a single R&D relief, delivered as an expenditure credit that will replace the current SME and RDEC schemes.
It is too early to say what this will mean for SMEs, as we won’t know the details until the merged scheme is confirmed. It does mean that businesses may need to keep a look out for any announcements in the next fiscal event, 22 November 2023. You will need to understand the likely changes, when they will happen, how to deal with any accounting periods that straddle the introduction of the new scheme.
Specific attention should be given to the detailed requirements of the new scheme including qualifying costs and how R&D expenditure will need to be reflected in financial statements. As this is in effect new R&D tax credit scheme, any business, and their accountants, will need to understand and apply the legislation to ensure they are confident in the new requirements.
Stay ahead of what’s coming down the line
Not only are changes coming thick and fast, it comes at a time when HMRC are increasing their scrutiny of the schemes and are increasing their expectations for compliance. It is vital that business are confident both in their own abilities and those of their accountants and other advisors.
It is essential that SMEs understand the direction of travel of the R&D tax credit schemes and the prospect of further changes through the introduction of a merged scheme. Of course, there is the potential for even more movement should we see a change in Government. In that event it is likely that we will see high level policy change in addition to detailed application amendments.
Increasingly businesses, and their accountants, are seeking the advice of R&D tax relief specialists to ensure that any R&D tax relief claim is robust and compliant within the prevailing rules. It has never been more important to keep abreast of the legislation and to seek the correct advice and guidance from your accountant and specialist providers.
Tips for SMEs:
- Make sure that your accountant is fully aware of any new administrative requirements – or seek the advice of a specialist
- Be aware of new rates and how they will impact your future claim value– the SME scheme has new rates that apply for expenditure incurred on or after 1 April 2023
- Establish if your business meets the definition of an R&D intensive business – this will have an impact on the R&D tax relief rate that is applied on expenditure incurred on or after 1 April 2023
- Be aware of HMRC’s new levels of scrutiny to ensure compliance – and make sure that your accountant or advisor is able to offer support in the event of an HMRC enquiry.
- Be aware of future scheme changes – those already envisaged and those to be announced
If in doubt speak to an R&D tax specialist to make sure that you have this covered.