Research and Development new requirements and notification changes

Following a review of R&D launched at the 2021 Budget the government announced a series of measures to tackle what HMRC consider to be abuse of the reliefs. The majority of these changes are now in place and discussed below.

Research and Development additional information form

As of 08 August 2023, companies are now required to complete and submit an additional information form to HMRC to support all claims for Research and Development (R&D) tax relief or expenditure credit.

The additional information claim encompasses information about the company, including who from the company is the responsible person for the R&D claim along with details of the costs across qualifying categories and projects. Companies must also provide a detailed description of the R&D projects with the questions centered around the Business, Innovation & Skills (BIS) guidelines. These include information on the baseline knowledge, scientific or technological advances sought, what scientific or technological uncertainties arose and how these were dealt with or overcome.

This form is required to be submitted in advance of the CT600, and you must confirm by ticking box 657 on the CT600 that the additional information form has been submitted. Where either the additional information form has not been submitted or the box has not been ticked on the CT600, the R&D claim will be automatically rejected.

Research and Development advanced notification form

Companies may also need to inform HMRC, in advance, that they plan to make a claim. The advanced notification requirement applies for claims made relating to accounting periods which commenced on or after 01 April 2023. The form must be submitted, within 6 months of the end of the period to which the claim relates. Companies that have claimed in one of the preceding three periods will not need to pre-notify. If the advanced notification form is required, companies will also be required to tick box 656 on the CT600 to confirm this has been completed.

R&D Tax Relief rate changes

The R&D rates have now changed following 1 April 2023 amendments. The rates have been amended for both the SME and RDEC schemes becoming 86% and 20% respectively, with the small and medium (SME) sized company credit rate being decrease from 14.5% to 10%.

For accounting periods starting on or after 1 April 2024 the new merged RDEC and SME scheme is now in force.  Currently the merged scheme will be centered around the RDEC scheme with a 20% tax credit applied.

R&D Tax Relief rate changes

The R&D rates will also be changing for both the SME and RDEC schemes from 1 April 2023 becoming 86% and 20% respectively, with the small and medium (SME) sized company credit rate being decrease from 14.5% to 10%.

In the 2023 Autumn Statement, the Chancellor announced the merging of the RDEC and SME schemes, which will come into force on 1 April 2024. Currently the merged scheme will be centered around the RDEC scheme with a 20% tax credit applied.

Research and Development qualifying expenditure

Finally, there has been some changes on qualifying costs from accounting periods beginning on or after 1 April 2023. Qualifying costs now include costs of datasets and cloud computing. Pure mathematics will also qualify for relief and can form part of the qualifying R&D activities of the claimant.

In addition to the relaxation of some costs which can now be included as qualifying, there has also been some further restrictions, namely on subcontractor costs which are now required to be UK expenditure, or meet specific rules in order to be classed as qualifying overseas expenditure. Please note the subcontractor changes will now take effect for costs incurred in accounting periods starting on or after 1 April 2024.

Get in Touch

If you have any questions relating to the R&D tax relief or claim process, or would like to learn more about the Research & Development rates and reliefs, and find out how your business can benefit, get in touch with our tax experts. who will be happy to discuss your own requirements and assist you.

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