In light of the recent updates aligning with HMRC’s revised guidance on the Additional Information Form, the refined definition of pure mathematics, and the expanded advance claim notification requirement, it’s imperative to be well-versed in the intricacies of Research & Development (R&D) tax relief.
These changes, which will take effect in April 2023 and April 2024, carry significant implications for businesses engaged in innovation and the development of new processes, products, or services. It is crucial to comprehend the evolving landscape of R&D tax relief regulations, as this knowledge will play a pivotal role in shaping your financial forecasts.
A notable shift occurred on 8 August 2023, mandating that companies complete an Additional Information Form, marking a substantial alteration in compliance requirements.
Why is the regime changing?
The government has set a target to increase the investment in R&D to reach 2.4% of the UK’s Gross Domestic Product (GDP) by the year 2027.
R&D tax relief plays a significant role in advancing this goal, as it serves to lower the financial burden associated with innovation for UK businesses. The government is actively working to enhance its effectiveness in promoting “additionality,” which refers to the additional R&D investments made by companies claiming the relief.
Moreover, there is a drive to reform the claims process to address errors and potential misuse of the R&D tax relief system.
R&D tax relief rates from 1 April 2023
| Financial Position | Relief before 1 April 2023 | Relief from 1 April 2023 | Change |
| Loss-making | 33.35% | 18.6% to 27% | -6.35% to -44.23% |
| Breaking even | 18.85% | 8.6% | -54.38% |
| Profitable | 24.7% | 16.34% to 21.5% | -33.85% to -12.96% |
Loss-making R&D intensive companies are those where qualifying R&D expenses make up at least 40% of their total expenses.
To determine total expenses, you start with the total expenses as reported in the profit and loss (P&L) account, make adjustments by including any expenses utilised under section 1308 of the Corporation Tax Act (CTA) 2009, and deduct any non-deductible amounts for corporate tax purposes.
Both the SME and RDEC schemes provide a repayable credit, subject to certain caps, albeit with distinct methods of calculation. Additional information regarding the SME cap is available for further details.
It’s important to note that while many R&D costs can be claimed when they are incurred, this isn’t always the case. For instance, costs that pertain to a specific period, such as employee bonuses, may need to be allocated based on the accruals accounting method.
If your company does not have a fiscal year-end date of 31 March, you’ll also need to perform a split period calculation for R&D expenses to ensure the correct relief rates are applied.
In situations where cost apportionment proves challenging, HMRC may consider accepting a blended rate of relief for periods that span a change in the relief rate, provided it does not significantly impact your claims.
How we can help
Williamson & Croft is committed to providing comprehensive support to our clients in navigating the evolving landscape of R&D tax relief. The changes in rates and regulations set to take effect in the coming years represent a significant shift, and it is crucial for businesses to adapt and optimise their R&D claims accordingly.
Our team is well-equipped to assist clients in understanding the new rates and completing their R&D claims effectively. We possess a deep understanding of the intricacies of R&D tax relief, including the latest updates. We stay informed about the changing rules and can help clients make the most of available opportunities.
Every business is unique, and we offer tailored advice to ensure that clients maximise their R&D claims based on their specific circumstances. We assist in preparing the necessary documentation and ensuring compliance with HMRC regulations, reducing the risk of errors or issues in the claims process.
Our goal is to make the claims process as smooth and efficient as possible, minimising any disruption to our clients’ day-to-day operations.
We keep our clients informed about changes, deadlines, and opportunities related to R&D tax relief, so they can make informed decisions. Our commitment extends beyond just helping clients file a claim. We provide ongoing support and advice to ensure that they remain compliant and continue to benefit from R&D tax relief.
In a rapidly changing environment, where R&D is a cornerstone of innovation and competitiveness, we are your partner in adapting, optimising, and benefiting from the new rates and regulations. We are dedicated to assisting our clients in realising the full potential of R&D tax relief and helping them achieve their financial objectives. Contact us today.