Research and Development (R&D) tax relief is one of those relatively rare tax good news stories. As an incredibly valuable relief, it’s something that’s always worth considering and we hope that this blog serves as a good first step.
R&D – the key to continued investment
Small and medium sized companies can claim an additional 130% of tax relief on any qualifying R&D spend in their tax return, reducing the amount of corporation tax payable. And, where a company is loss-making, a repayment of 14.5% of the qualifying spend can be claimed. For many small and medium sized businesses undertaking innovative work, R&D tax relief enables them to continue investing.
To reflect the ever-changing world of technology, expenditure on cloud computing costs and licence payments for datasets will qualify for R&D tax relief from 1 April 2023. The costs must directly relate to the R&D, and costs of a dataset that can be sold later or commercially exploited will be ineligible.
Refocus on domestic innovation
Proposals to restrict the relief so that it encourages UK activity are currently being considered. These changes are likely to affect small and medium businesses where R&D work is undertaken outside of the UK, for example where R&D is subcontracted to an overseas third party. This follows on from the 1 April 2021 restrictions which cap the R&D tax credit for small and medium businesses to £20,000 plus three times the company’s total PAYE and NICs liability for the relevant period, unless certain exemptions are met.
Future R&D claims
With HMRC concerned about spurious and excessive R&D claims, all future claims will have to be flagged to HMRC in advance and:
- be made digitally,
- contain more detail,
- be endorsed by a named senior officer of the company, and
- include details of any agents.
More than ever, this means that directors will need to fully understand the projects and costs that are being claimed as R&D.
Draft legislation is expected in Summer 2022 when it should be possible to understand how businesses are likely to be affected. We’ll share more details as soon as they are available.
Maximising your R&D claims
We use our expertise and experience to help businesses prepare and maximise their R&D tax relief claims. If this is something that you would like us to explore with you, please get in touch with Kate Naylor, or our AAB colleague and fellow R&D specialist, Alejandro Alcala.