What are Research and Development tax reliefs? R&D tax relief is a government incentive providing companies with tax breaks to encourage investment in innovative projects in the field of science and technology. The reliefs are dependent on the size of the company and subject to meeting various conditions:
SME Scheme: for small and medium-sized enterprises, an SME is defined as:
- Less than 500 staff, and
- A turnover of under €100 million or a balance sheet under €86 million
RDEC Scheme: for large companies and SMEs who do not qualify under the SME scheme.
| SME Scheme | Expenditure to 31 March 2023 | Expenditure from 1 April 2023 |
| Profit making | 130% uplift on costs | 86% uplift on costs |
| Loss-making | 130% uplift on costs or 14.5% cash credit | 86% uplift on costs or 10% cash credit |
| RDEC Scheme | Expenditure to 31 March 2023 | Expenditure from 1 April 2023 |
| Profit making | 13% taxable credit | 20% taxable credit |
| Loss-making | 13% taxable credit | 20% taxable credit |
Eligibility
For a project to qualify as R&D you should set out to achieve an advance in science or technology, not just in your company’s own knowledge. Your project can still qualify for R&D if the advance has already been achieved but the details are not readily available, for example, if they are a trade secret. UK registered companies that incur expenditure on developing new products, processes or services or enhancing existing ones may be eligible to claim R&D. The scope for identifying R&D is huge – in fact, it exists in every single sector. It occurs in everything from cheese-making to chemical engineering, and construction to digital development. If your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’ then you may be carrying out a qualifying activity. If your project is possible, or you do not know how to achieve it in practice, you could be resolving technological uncertainties and carrying out qualifying R&D. Even expenditure on unsuccessful projects can qualify.
R&D changes
R&D tax reliefs have been subject to significant reforms to help tackle abuse and improve compliance. As numerous changes have been announced recently, we have highlighted a few important points to ensure claims are processed correctly.
Additional requirement for all claims submitted from 8 August 2023
Additional information, including details of expenditures and projects, must be submitted to HMRC digitally to support all claims. The additional information must be completed prior to the submission of the Corporation Tax return, otherwise it will be removed by HMRC as an invalid claim.
Advance Notification
For accounting periods starting on or after 1 April 2023, an Advance Notification Form is required to be completed. This will typically apply to companies seeking to claim R&D for the first time or for new companies wishing to claim. The notification must be made within 6 months from the end of the accounting period the claim relates to. HMRC will remove any claims which have not been pre-notified. Companies that have submitted an R&D claim in the previous three accounting periods do not need to submit an Advance Notification Form.
Changes to eligible R&D activities
For accounting periods beginning on or after 1 April 2023, the definition of eligible qualifying costs have been extended and now include:
- Cloud and data expenditure – costs such as licence payments to access digital data, cloud computing services and data storage costs can now qualify for relief provided they are linked to R&D activities.
- Pure mathematics – mathematical advances are now treated as a science for R&D purposes. Development of new mathematical structures and symmetries may now be eligible.
Companies already submitting R&D claims may find they will now need to submit additional supporting information to prevent claims being rejected by HMRC. Existing and new companies will need to assess whether they have undertaken R&D activities within a fairly short timeframe so that prior notification can be made to HMRC.
We can assist companies to ensure valuable R&D tax reliefs are secured. If you would like more information or any advice on this article then please contact us by emailing clea@ellacotts.co.uk or call us on 01295 250401. You can also contact us here with your query and we will get back to you.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
