Navigating Recent R&D Changes: What Businesses Need to Know

In the dynamic landscape of Research and Development (R&D) tax relief, staying abreast of changes is paramount for businesses seeking to maximise their benefits. Scott London-Hill, Research and Development Manager at MHA, sheds light on recent developments and offers valuable insights for companies navigating these shifts.

1. Revised Rates for SMEs and RDEC

The adjustments in rates for Small and Medium-sized Enterprises (SMEs) and Research and Development Expenditure Credit (RDEC) have been fully implemented since April 23. Notably, SMEs now receive lower rates (a decrease from 130% to 86%, with cash credits dropping from 14.5% to 10%) whilst RDEC credit increases from 13% to 20%. This shift necessitates recalibrating projections and ensuring that calculations are aligned with the updated figures.

There is also an option for SMEs to qualify for an enhanced credit of 14.5% by demonstrating intensive R&D expenditure (where qualifying R&D expenditure is above 40% of its total expenditure, reducing to 30% for accounting periods starting after 1 April 2024).

2. Cloud Computing and Data Costs

Expenses related to cloud computing and data now qualify for R&D tax relief, presenting businesses with an additional avenue for maximising their claims.

3. Awareness of AIF

Another significant change is the implementation of the Additional Information Form (AIF) for claim submissions. Despite being in place for several months, some businesses might still be unaware of its implications. It is crucial to ensure that all eligible entities are cognisant of the AIF requirements and update their processes to avoid issues and delays in submitting claims.

4. Notification Requirements for New Claimants

For accounting periods commencing after 1 April 2023, new claimants must adhere to a strict notification deadline. Failure to complete the claim notification form within six months of the year-end will result in any R&D claim being lost, underscoring the importance of timely compliance. This also applies to companies whose last claim was made more than 3 years before the last date of the claim notification period. For example:

If the accounting period in which you incur R&D costs runs from 1 January 2024 to 31 December 2024:

• The end date of the accounting period is 31 December 2024, therefore;
• New claimants, or those that have not made a claim since 30 Jun 2022, must submit the claim notification form between 1 January 2024 and 30 June 2025

5. International Subcontracting Restriction

Changes in subcontracting regulations now mandate that for accounting periods starting on or after 1 April 2024, all subcontractors and ‘Externally Provided Workers’ must be based in the UK. Exceptions are granted only under specific circumstances, emphasising the need for meticulous scrutiny of subcontracting arrangements. These conditions may include regulatory or environmental, but not financial reasons. Records and evidence (for example contracts) should be kept where companies feel they should be exempt.

6. Merged Scheme

For accounting periods starting on or after 1 April 2024, the old SME and RDEC schemes will be merged into a new RDEC style scheme, (with the SME scheme still available for R&D Intensive companies, as mentioned above). this has further implications on subcontracting and subsidised expenditure, which can be found here.

7. Emphasis on Communication and Consultation

Amidst these evolving regulations, effective communication and consultation with R&D tax specialists become paramount. Businesses are encouraged to seek clarification on any ambiguities and engage in proactive dialogue to optimise their R&D strategies.

In conclusion, amidst these R&D changes, proactive engagement and timely notification are paramount. Businesses must collaborate with experts to navigate through complexities and capitalise on available opportunities. The landscape of R&D incentives continues to evolve, emphasising the importance of adaptability and informed decision-making for sustainable growth.

As we delve deeper into these changes, it's evident that staying informed and proactive is the key to harnessing the full potential of R&D incentives in today's dynamic business environment.