Research & Development (R&D) changes coming from April 2023

Some of the changes allow new activities or expenditure types to fall within the R&D regime. Most of the changes have been made to tackle the abuse of R&D tax relief.

Attempts to tackle abuse are welcomed by the profession, but there are also important changes impacting all claimants that need to be planned for:

Perhaps one of, if not the most significant change that will impact claimants, especially first-time claimants, is the requirement to notify HMRC of the intention to make an R&D claim.

This must be done within six months of the end of the period, unless a claim for the company has been made within the last three years. That three year period is by reference to the timing of when the Notification is due – which is due within six months of the end of the period – not by reference to the company’s year end date.  Please note the important exception to this; if the only R&D claim made within the last three years relates to a period which started prior to 1 April 2023, which was included in a company’s amended corporation tax return, and that amended return was filed after 1 April 2023, then that filing is ignored for these purposes i.e. a company will not be treated as having submitted an R&D claim within the last three years (if that was the only R&D claim submitted within the three year period). 

If this six month window is missed, there are no exceptions – no claim can be made. It is more important than ever that companies identify R&D early and talk with their R&D adviser to ensure opportunities aren’t missed.

In some cases, it may be better to be safe than sorry; HMRC will not penalise companies that notify of the intention to claim R&D tax relief and then do not claim the relief.

There are some proposed changes to the submission process of an R&D claim, such as:

1. The claim is required to be signed off by a director of the company
2. Details of the R&D tax adviser are to be included, if applicable
3. All claims are to be submitted digitally
4. The costs must be disclosed to HMRC and allocated to prescribed qualifying categories
5. A brief description of the R&D undertaken must be provided

Currently, R&D activities subcontracted overseas, and the cost of externally provided workers (EPWs) from overseas, can form part of qualifying expenditure.

The proposed change is that the cost of subcontractors or EPWs abroad cannot be claimed, unless exceptions apply.

The exceptions may be met where factors such as geography, environment, population, or other conditions (not present in the UK) are required for the R&D, such as deep ocean research or clinical trials.

The government has stated that cost considerations or workforce availability will not qualify as exceptions.

Our view is that the exceptions may be extremely difficult to satisfy, other than in the most limited of circumstances, so this is a significant change for claimants who use non-UK persons to support them in their R&D.

Qualifying expenditure will include the costs of datasets and cloud computing, insofar as it is relevant to the R&D.

This is a welcome change; previously, companies have missed out on claiming relief for this type of expenditure, which can be integral to the R&D.

The definition of R&D will be amended to remove the exclusion of ‘pure mathematics’, meaning that advancements in respect of pure maths will be eligible for R&D tax relief.

Generally, for companies to make an R&D claim, they must be a ‘going concern’ at the last set of accounts date.

Changes are coming to ensure that this does not catch cases where the only reason a company is not a ‘going concern’ is because it’s trade has been transferred to another group company.

There’s no doubt about it; the R&D landscape is changing.

It is more important than ever to ensure your claim is robust and timely.

If you would like a no-obligation chat to see whether your company could qualify, please get in touch with one of our R&D team members:

Aisha Perrott

Marketa Pasova

Stephen Martin