Changes to R&D Tax Credits Claims

Who is likely to be affected?

These changes will affect companies that carry out Research & Development (R&D) and claim R&D tax relief under either of two schemes - the Research and Development Expenditure Credit (RDEC) and the small or medium enterprises (SME) R&D relief, and some companies which have made a Patent Box election.

R&D tax reliefs have a key role in incentivising R&D investment by reducing the costs of innovation. Following the review of R&D tax reliefs launched at Budget 2021, the government announced the following measures, which will generally apply for accounting periods beginning on or after 1 April 2023:

Extending qualifying expenditure

To incentivise R&D using modern computational approaches, the government is extending the scope of qualifying expenditures to include the costs of datasets and of cloud computing.

Tackling abuse and improving compliance

To tackle abuse of the reliefs, 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) and be accompanied by a compulsory additional information form.

• The additional information forms will have to break the costs down across qualifying categories and provide a description of the R&D.

• each claim will need to be endorsed by a named senior officer of the company

• companies will need to inform HMRC, in advance, that they plan to make a claim. They will need to do this, using a digital service, within 6 months of the end of the period of account to which the claim relates. Claim notification will only be required where a customer has not made an R&D claim during the period of three years ending with the day before the first day of the claim notification period.

• Additional information and claim notification forms will need to include details of any agent who has advised the company on compiling the claim.

• The additional information form will be required for all claims made on or after 1 August 2023.

Measures to address anomalies and unforeseen consequences.

A number of changes will be made to correct anomalies and ensure the reliefs operate as intended. These include:

• allowing companies to claim RDEC instead where they had previously erroneously claimed SME relief and the time limit for amending claims has expired.

• clarifying that expenditure generally qualifies where a payment is made within two years of the end of the accounting period in which the expenditure was incurred.

• amending the time limit for making a claim to two years from the end of the period of account to which they relate, rather than 12 months from the statutory filing date as defined by paragraph 14 of Schedule 18 to Finance Act 1998. This will prevent companies which do not receive a notice to file, either because they fail to register or notify HMRC that they are dormant, from benefiting by having more time to make a claim.

• Supporting businesses growing and transitioning from the SME scheme to RDEC, by providing that where an SME within a group exceeds the size thresholds for an SME, all companies in the group will retain SME status for one year afterwards. Under the current legislation, while the company itself retains its status, other companies in the same group lose their SME status straight away.

• Amending the rule preventing relief for a company which is not a “going concern” so that where a company ceases to be going concern solely because of the transfer of a trade, and is otherwise viable, it may still claim.

Further consequential measures

The following further changes are being made to ensure the reliefs operate as intended:

• The Patent Box regime uses R&D definitions of qualifying expenditure as part of its calculations. As this package of R&D changes expands the categories of qualifying expenditure to include data and cloud computing costs, the relevant sections of the Patent Box rules require consequential amendment.