Major Changes to R&D Rules from April 2023

As you will know, in the Autumn Statement 2022 Chancellor Jeremy Hunt announced changes to R&D Tax Credits for UK businesses, affecting both SMEs and large organisations from April 2023. The changes to R&D Tax  Credits reflect a shift in strategy from the Treasury for investment in UK innovation.


  How will this affect me?

The coming changes will only affect expenditure from 1st April 2023. This means that SME’s undertaking innovative R&D can still take advantage of the government’s more generous relief rates for expenditure up to 31st  March 2023.


Do you do any of the following? If so, it’s important to ensure that your business doesn’t miss out on the tax relief available.

  • Have you developed your own software, IT solutions or products?
  • Do you manufacture products?
  • Have you improved or sought to improve your processes or the efficiency of your services?
  • Do you regularly change the way you make your products?
  • Have you tried to resolve technical product or process challenges?

     


  What to expect

The additional deduction for SMEs will decrease from 130% to 86%, and the SME credit rate will reduce from 14.5% to 10%.

Also, for expenditure from 1st April 2023, the Research and Development Expenditure Credit  (RDEC) rate will increase from 13% to 20%.


 SMR regime net benefits
 Large company regime (RDEC) net benefits
Profitable
Company
 Up to 31 March 2023
 From 1 April 2023
 Up to 31 March 2023 From 1 April 2023
24.7%
 21.5%
 10.5% 
 15% 
Loss making
Company
 33.4% 
 18.6% 
 10.5%  15% 


  Promising Changes

From April 2023, you will expect to see the following changes:

  • Qualifying Expenditure - This will be extended to include direct R&D expenditure on access and use of digital data and cloud computing services
  • Cloud Computing - Through the extension to cloud computing, it will allow companies to claim for the provision and maintenance of data storage, computer hardware facilities, operating systems and software itself
  • Staff Costs - These will be paid to include the Health and Social Care Levy which will add an additional 1.25% of the wage costs for each employee involved in the R&D




      

  Challenges Faced

From April 2023, you will expect to see the following changes:

  • Overseas Activity Restriction – To drive focus on R&D relief on UK innovation, there will be restrictions on overseas activity which will be rather challenging for those who need to access a global skill base
  • First time R&D Claims - Companies wishing to make an R&D claim for the first time (or have not made a claim in the previous 3 accounting periods) must notify HMRC within 6 months of the end of the relevant accounting period

  Additional Changes

There are several other important changes to R&D Tax Credits which are designed to improve protection against fraud and errors in R&D claims.


Some of the new measures that we at Price Pearson already have in place are:

  • Claims submitted digitally
  • Claims must be accompanied by a thorough report detailing the R&D projects
  • Claims must include details of any associated agents

Overall, the rates will be rebalanced so that businesses claiming under the R&D SME scheme will receive a lower rate of tax relief, while those claiming R&D Expenditure Credit (RDEC) will secure more generous rates. The changes also emphasise a strong drive from the government to tackle abuse and improve compliance.