R&D tax claim changes from 1st April 2023

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Following the Autumn Statement on the 17th November, and a very interesting week in Parliament as the House of Lords continue their investigations including discussions with HMRC and Treasury representatives, the R&D sector eventually has an idea of how the scheme is going to be changed from 1st April 2023.

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The SME and RDEC schemes rates will be altered differently:

  • The SME scheme enhancement rate is being reduced to 86% from 130%, and the tax credit rate reduced from 14.5% to 10%.
  • The RDEC scheme rate been increased from 13% to 20%.

This has hit the SME scheme much harder than the RDEC scheme, which is not particularly welcome however it does mean government is continuing to support UK R&D and investment in innovation. Effectively, SMEs will face a 33-45% reduction while the RDEC will see an increase of over 40%. The change in RDEC rates will have a positive impact on SME claimants that undertake R&D activities on behalf of other companies, and if your company has already gained the benefit of an innovation grant.

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A reminder of changes to all R&D tax claims

From April 2023, HMRC will implement the following changes, taken directly from the HMRC R&D Tax Reliefs Report:

  • Companies will need to inform HMRC, in advance, that they plan to make a claim
  • All claims to the R&D reliefs – either for a deduction or a tax credit – will in future have to be made digitally (except from those companies exempt from the requirement to deliver a Company Tax Return online)
  • Claims will require more detail – for example, on what expenditure the claim covers, the nature of the advance sought, the field of science or technology, the uncertainties overcome
  • Claim will need to be endorsed by a named senior officer of the company
  • Claims will need to include the details of any agent who has advised the company on compiling the claim

Submitting claims digitally should make it quicker and easier for HMRC, resulting in more claims being reviewed, processed and potentially more enquiries being launched.

Overall, we see these changes in a positive light and we can now plan for the changes that are coming.

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The way ahead

Politically, the scheme is a very important signal as it allows UK PLC to compete for foreign investment in R&D. The enhanced support into the RDEC scheme would suggest the UK Government believes this will be delivered more effectively through larger UK companies. Here at iCS we would have to question that head on but time will tell.

Another area iCS find interesting is that the changes to be implemented aim to prevent fraud and discourage rouge advisors away from the sector. iCS don’t believe the rouges will disappear, especially in the short term. The changes will not really come into effect until around late 2024, as the first claims to be affected are for the financial year ending April 2024 and accounts can take over six months to be signed off, so there is little incentive for rouge advisors to change their habits and their misleading marketing messages right now. Please stay vigilant and ensure you undertake due diligence before engaging any R&D advisor, especially if it comes from a cold call.

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Take care in appointing advisors

iCS warn company directors to be careful because there are still some unscrupulous ‘advisors’ out there, but following this checklist should ensure you appoint someone who is both competent and experienced to give advice:

  • Check that the advisor offers clearly worded contracts that don’t tie your company into a long-term contract.
  • The advisor only asks you to sign anything after you have a good understanding of the financial benefits and any potential commercial risks in making a claim.
  • Check the fee or price is clear and shows what any contingent fees are based upon.
  • Check that the advisor shares the report and financial information in a clear and open way so that you fully understand the basis of your claim.
  • Have you been offered the opportunity for your own accountant to calculate the revised tax computation and file the claim on your behalf, as they may know about the scheme?
  • Check to see if the advisor provides ongoing free support in the event of an HMRC inspection (and that is this clearly stated in their contract)?

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Future Changes iCS Would Support

iCS welcomes HMRC’s drive to improve compliance and eradicate poor practice. In addition, we would like to see:

  • Regulation for advisors supporting the R&D scheme
  • Greater education around scheme rules
  • Less subjectivity in how R&D is defined and interpreted by claimants and different HMRC inspectors. For example, opinions can vary widely on what constitutes “technological uncertainty” or an “appreciable improvement” over an existing product or service
  • More targeted policing of the scheme with more meaningful consequences for fraudulent claimants and their advisors
  • A requirement for every claim to be supported by a Technical Report with a detailed breakdown of R&D expenditure signed off by the claimant company
  • Simpler Sub-contractor rules to avoid the current ambiguities
  • Less contentious and confrontational HMRC inspections

More about out guest bloggers, Kevin Johnson and Paul Wallace.

Kevin and Paul are directors at Innovation Cashflow Services, who provide R&D tax claim advice, compiling claims and consulting on investigations on behalf of their clients and their accountants. iCS have grown exclusively through successful accountant partnerships and client referrals.

To find out more visit the iCS website or call +44 7508 502 628.

Kev Johnson

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You’ll find more Aardvark guest blogs, written by business experts, here

We hope that the information and views resonate with you. If you would like to learn more about our business, and our service to both accountants and clients, then feel free to contact Kevin Johnson on kev@i-cs.co.uk, or Paul Wallace on paul@i-cs.co.uk. We will be delighted to have an open and honest conversation with you.

You can download a copy of the HMRC R&D Tax Reliefs Report HERE