There has been a roller coaster of changes to UK R&D tax credits and reliefs over the last two years, affecting businesses of all sizes. With new restrictions on expenditure overseas and stricter compliance measures, it’s never been more important to stay informed.
Here’s a concise summary of the key updates for you to consider how they may impact your company.
For accounting periods starting from April 2024:
- Merged scheme for R&D tax relief: The previous separate schemes for SMEs and large companies merge into a single scheme, simplifying the system – referred to as ‘new RDEC’ (new Research & Development Expenditure Credit).
- Overseas R&D restrictions: Companies will generally no longer be able to claim R&D tax relief for work conducted overseas, except in very specific circumstances.
- Contracted out R&D: Significant changes to the rules on which company can claim the costs of R&D undertaken in a client and contractor relationship.. These replace the previous subcontracting rules.
- Mandatory additional information for R&D claims: Companies must provide more detailed information using an online R&D Additional Information Form (AIF), including a description of the R&D activities and associated costs.
- Measures to tackle abuse: HMRC begins implementing stricter measures to prevent fraudulent and incorrect R&D claims including a more extensive and rigid compliance checking process.
- SME rate changes: The rate of enhanced deduction for SME R&D expenditure decreased, reducing the tax benefit for SMEs.
- SME Enhanced R&D Intensive Support (ERIS): Loss-making, R&D-intensive SMEs meeting a specific spending threshold can access a higher rate of relief through the Enhanced R&D Intensive Support scheme (ERIS) (although this is still lower than the prior SME claim rate).
- RDEC rate changes: The rate of R&D Expenditure Credit (RDEC) for large companies increased, making the relief more generous for them. This rate carried over into new RDEC.
- Qualifying costs around data license, cloud computing and pure mathematics: Costs related to data licenses, cloud computing and pure mathematics research were brought within the scope of qualifying expenditures for R&D tax relief.
- R&D claim notification: Companies now required to notify HMRC of their intention to claim R&D tax relief, within six months of the end of the accounting period in which the expenditure is incurred, unless they have an exemption.
