In this edition Corporate Tax Director Robert Harness looks at the upcoming changes to Research & Development (R&D) tax relief and what you need to know before the changes come into effect from April 2023.
Why is it relevant?
The UK has a generous R&D tax credit system for companies undertaking qualifying R&D. The R&D relief regime has been designed to encourage investment in R&D and to make the UK an attractive location for innovation businesses.
Recently, the UK Government has expressed concern that the R&D tax relief system does not do enough to promote innovative activity and job creation in the UK.
The Government is also concerned about the prevalence of “dubious” claims prepared based on advice from R&D advisers that are not members of professional bodies and have no background in tax, and who often charge on a commission basis.
In light of these concerns, the Government has revealed plans to make certain important changes to the R&D tax relief system. These changes will take effect from April 2023.
Who is it relevant to?
Companies of any size that make R&D tax relief claims in the UK.
What do you need to know?
With effect from April 2023, companies will only be able to claim relief for subcontracted expenditure where the third party performs the work in the UK. Relief will only be available for payments for externally provided workers (EPWs) where the workers are paid through a UK payroll.
HMRC will consult on whether there is any case for narrow exceptions to allow claims for some overseas activity, but any exceptions would not allow claims for overseas activity on the basis that it is cheaper to engage subcontractors / EPWs overseas than in the UK.
Changes will also be made to the process for making claims for R&D relief. Companies will need to inform HMRC in advance that they plan to make a claim.
All claims will have to be made digitally, and those claims will have to be supported by more narrative than is currently mandated – this will need to include more detail about the expenditure included in the claim, the nature of the scientific or technological advance being sought, the field of science and technology to which the R&D project relates, and the nature of the scientific or technological uncertainties being overcome.
Each R&D claim will need to be endorsed by a senior, named officer of the company, and will need to include details of any agent who has advised the company on compiling the claim.
Certain other amendments will be made to the R&D legislation, largely to clarify the operation of the relief and eliminate anomalies and inefficiencies in current law.
The Government intends to consult with stakeholders in relation to the detailed implementation of these measures, with draft legislation to follow in summer 2022.
What should you do next?
If you would like to know more about R&D tax relief, or how these changes will impact on your business, please get in touch with your usual Blick Rothenberg contact or Robert Harness, using the details on this page.