What are the key changes to the UK R&D Tax Credit Schemes?

Upcoming changes to Small and Medium-sized Enterprises (SME) R&D Relief and R&D Expenditure Credit (RDEC) schemes

From 1st August 2023, all claimants must complete and submit an additional information form to HMRC including project descriptions. The requirements have been summarised below, along with other major changes to the administration of the two schemes. Please note that all additional information forms must be submitted via the HMRC portal prior to the filing of the CT600 (however, the CT600 can be submitted without R&D numbers and amended retrospectively once the necessary additional information is available).

In addition, for accounting periods commencing on or after 1st April 2023, companies who have not previously claimed for any R&D tax reliefs will be required to declare an intention to file a claim within 6 months of the relevant claim period elapsing. For example, Company X has an accounting period ended 31st March 2024 and would therefore have to provide notification to claim to HMRC by 30th September 2024.

Below is a summary of the upcoming requirements, as well changes in place from 1 April 2023.

Project Information Required:

Technical Descriptions:

• What is the main field of science or technology?
• What was the baseline level of science or technology that the company planned to advance?
• What advance in that scientific or technological knowledge did the company aim to achieve?
• The scientific or technological uncertainties that the company faced.
• How did your project seek to overcome these uncertainties?

R&D Expenditure:

• Full Breakdown of Qualifying Expenditure by project, cost, and category.

Qualifying Indirect Activities:

The amount of qualifying expenditure for each project in relation to Qualifying Indirect Activities, that does not directly lead to resolving the uncertainty.

Examples include:

• Supporting activities such as security, admin, secretarial and finance that relate to R&D.
• Training required to directly support the R&D project.
• Creating information services for R&D support such as preparing a report of R&D findings.

Additional Company Information Required:

Company Details:

• Unique Taxpayer Reference (UTR)
• Employer PAYE Reference Number
• VAT Registration Number (if applicable)
• Business Type (Current SIC code or equivalent)

Contact Details:

• The main senior internal R&D contact in the company who is responsible for the R&D claim, for example a company director.
• Any agent involved in the R&D claim.

Key Dates:

• Accounting periods start and end date for which the tax relief claimed relates to.

Key takeaways – What this means for you?

• New claimants will need to notify of claims well in advance of submission, it is crucial to ensure this is done to avoid missing out. Please let us know as soon as possible so we can ensure this is done and correctly filed.
• Financial only submissions can no longer be made, as a result care must be taken to ensure the projects are well defined and to be able to demonstrate how they qualify for R&D tax reliefs. The claim must be signed off by an officer of the company. Additionally, details of the agent must be listed.
• HMRC are particularly focussing on identifying fraudulent claims.
• HMRC are also reviewing the company SIC code in the context of the R&D claim. As such, particular care must be taken to ensure R&D activities are well defined and linked to the trade or that additional information is provided where the R&D activities are not immediately reflected in the SIC code.
• More protracted claim process – additional financial information and breakdowns will require additional input from claimants, highlighting the importance of a structured claim process.

Additional Qualifying Categories Cloud computing and data

From 1st April 2023, the UK government's guidelines on R&D tax relief have included cloud software and data costs to qualify as research and development activities if they meet certain criteria.

Pure mathematics

From the 1 April 2023, the government have expanded their definition of R&D to include Pure Mathematics, which has contributed to the development of cryptography, and algorithms used in machine learning and artificial intelligence in recent years.

The exclusion of international subcontracting has been delayed until the 1st of April 2024.

The government have delayed the exclusion of international subcontracting from R&D qualifying activities to the 1st of April 2024, which is intended to incentivise and reward companies for carrying out R&D work within the UK.

Potential merging of the SME and RDEC schemes

A potential merger of the SME scheme and the Research and Development Expenditure Credit (RDEC) scheme from April 2024 is under consultation. The aim of this merger is to simplify the system and make it easier for businesses to claim R&D tax relief, however, could see a further restriction of the benefit for SME companies.

Get in touch

If you would like to know more about how we can help, then please contact us using our online enquiry form