Spotlight on changes to R&D

The recent hand brake turn on the decision to scrap the April 2023 rise in corporation tax rates, means R&D tax savings will become more valuable as CT rates rise.

Here we shine a spotlight on changes proposed for accounting periods beginning on or after 1 April 2023.

Overseas R&D

R&D relief will be denied for subcontractors where activities are carried on outside the UK, or for agency workers not subject to UK PAYE and some limited exclusions will be available. These include where it would be impossible for the activities to take place in the UK, due to geography, environment and population.

Additionally, legal or regulatory requirements may also be valid. Acceptable exceptions, include (but are nor limited to) deep sea divers or overseas clinical trials. Please note that cost or workforce availability alone is not an acceptable reason.

Data, cloud computing and pure mathematics

Cloud costs associated with R&D will be allowed, including those relating to data storage.

Similarly, costs incurred in areas reliant on pure mathematics such as Artificial Intelligence, quantum computing and robotics will be permitted. 

Further information and accountabilities

• All claims to be made digitally
• Supporting information will be mandatory
• Claims to be endorsed by a named senior officer of the company
• Agent details to be included in the claim

Advance notification

If an R&D claim has not been made in any of the three previous periods, HMRC will need to be notified of an intention to make a claim within 6 months from the end of the relevant period.

PAYE cap (April 2021 reminder)

The cap applies to the R&D tax credit scheme for loss surrenders and may limit the repayable tax credit in some circumstances.

The cap is set at three times the PAYE and NIC liability of the claimant, plus £20,000, although it should be noted that some companies will be exempt from the cap.

In light of the current enquiry by the House of Lords Finance Bill Sub-Committee into R&D, the speed of change at No.10 and the difficult economic conditions, further changes may be on the horizon, so we will keep you updated on any future announcements.

Please do not hesitate to contact our R&D tax team to review how the changes may impact your position.