Finance Bill 22/23 – What does it mean for R&D Tax Reliefs?

This week, HMRC has published details of new tax legislation that is to take affect from April 2023. The Research and Development Tax Relief changes policy paper is available to read in full on the UK Government  .

The new legislation, which had previously been announced in the 2021 Budget, aims to extend qualifying expenditure, refocus reliefs towards UK innovation, and counter-acting abuse of the scheme.

Here are the main things you need to know about the new policies.

Making R&D Tax Reliefs digital and tackling abuse

The new legislation sets out that claims must be submitted digitally and must include a breakdown of costs across qualifying categories, a brief description of the R&D, an endorsement by a senior officer, and details of any agent who advised the company on compiling the claim.

Any companies that have not claimed in any of the three previous years must inform HMRC digitally, within six months of the end of the period, of their intention to make a claim. The two years’ to then make a claim still applies, but this pre-notification has to be in place, otherwise a company could potentially miss out.    

Changes to qualifying R&D

In order to support modern methods of research and development, the scope of qualifying R&D expenditure is being extended to include datasets and cloud computing, both of which are integral to the way modern innovative companies conduct R&D.

The definition of R&D is also being updated to include pure mathematics. Where the Patent Box scheme uses R&D definitions of qualifying expenditure, the Patent Box rules will also be amended.

Subcontractors and externally provided workers

R&D tax relief for subcontracted work, and externally provided workers, will be limited to UK activity only, unless there are limited factors required but not present in the UK, such as environmental, geographical, population-based, etc. Exceptions will also include regulatory requirements which mean it must be taken overseas (e.g. clinical trials)

Health and social care levy

The new Health & Social Care levy, which is to be applied to payroll in a similar way to National Insurance (NI), will be able to be included as relevant staffing costs in the same way as NI.

SME and RDEC schemes

Under the new rules, where a company has claimed SME relief but was not eligible to do so, the company will be able to make an RDEC claim instead, even if the usual 2 year rule for amending claims are out of time.

Where a company within a corporate group grows out of the SME scheme, the company can currently keep its SME status for a year, while the rest of the group would lose it immediately. A revision to this policy will mean the whole group has a year's grace period.

Where a company ceases to be a going concern solely because it has transferred its trade to another Group member, it will still be entitled to claim.

See also: R&D Tax Relief crackdown by HMRC