Changes in legislation to Research and Development claims

If your company is thinking about making a Research and Development (R&D) claim – be prepared!

Companies have seen some big changes lately; changes in corporation tax rates, changes back to the associated company rules from the 51% related companies, and lately, additional requirements to support R&D claims and changes to R&D rates.

What can qualify for R&D?

There are six cost categories for R&D:

• Staffing costs (payroll)
• Subcontracted costs (SME only, unless the staff are from a qualifying body in which case may be included in an RDEC claim)
• Expenditure on externally provided workers (for example, agency workers)
• Consumables (utilities and raw materials used during R&D)
• Software costs
• Payments to clinical trial participants

For accounting periods ending after 1 April 2023, qualifying expenditure on costs relating to cloud-based technology and data software licences can qualify for R&D; this was not previously available.

Changes in relief rates for small and medium sized enterprises (SMEs)

For accounting periods ending after 1st April 2023, the additional deduction for SMEs decreased from 130% to 86% and the SME credit rate reduced from 14.5% to 10%. 

There is an exception for R&D intensive SMEs (SMEs where qualifying expenditure is at least 40% of their total expenditure).  These companies can continue to claim the SME credit rate at 14.5%.

Change in relief rates for R&D Expenditure Credit (RDEC)

For accounting periods ending after 1st April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%.

Change in the definition of R&D

The definition of R&D now includes pure mathematics meaning advancements in respect of pure mathematics will now be eligible for R&D tax relief.

Change in Administrative requirements - Additional Information Form (AIF)

From 8 August 2023, all companies must submit an Additional Information Form (AIF) before submitting the company’s return with the R&D claim.  If the AIF form is not completed beforehand, HMRC will remove the claim and no additional deduction will be allowed.

In addition, HMRC now require a senior officer to put their name on the form and this individual will be responsible for the claim.

If you are considering an R&D claim and would like our help, please contact Gursharan Sappal on gursharan.sappal@wardwilliams.co.uk or call the office on 01932 830664.