HMRC’s R&D Tax Changes

HMRC is introducing an R&D tax reform in hopes to eradicate fraud and abuse of the research and development tax credit scheme.

This reform has come due to the rising number of fraud cases that are circulating around businesses, making it harder for those that are in need of R&D tax credits to gain them, while handing tax relief to those who abuse it.

Here is the latest news about the HMRC reform…

What Are R&D Tax Credits?

Research and development tax credits are used for innovative businesses that are looking at developing new services, products or enhancing the services that they offer currently. If the project is costly, you can save money on tax through R&D tax relief, if it’s proven that the project you are working on is to benefit the development of your business.

R&D tax credits can be received in the form of a cash payment or a Corporate Tax reduction.

Key Changes...

There are a number of key changes you should be aware of if you are looking to claim R&D tax credits for the development of your business…

More Thorough Claims

For claims to be accepted, they will have to be more thorough and comprehensive than ever before, proving that your business is eligible for the tax relief.

The claim will need thorough evidence to show that your business is undergoing a project with scientific or technological advancement, a breakdown of the estimated costs and any challenges that the project may cause.

Notify in Advance

Starting from April 2023, businesses that haven’t submitted an R&D tax relief claim before will have to inform HMRC within 6 months from the end of the accounting period during which the claim would be made.

If the business has made an R&D claim in the last 3 accounting periods then they do not need to notify HMRC in advance.

Digital Claims Only

Claims for R&D tax relief will no longer be accepted via post or email.

Digital claims will be the only way that they can be accepted – through the government’s website.

Overseas Exclusion

Another reform is that overseas expenditure will no longer qualify for subcontractors of EPWs unless one of these exceptions applies…

• Material factors that are required are not present in the United Kingdom (geography, population, resources, environment)
• Legal requirements must take place outside of the United Kingdom (clinical trials, experiments, research)

Preparation

The best way to prepare for these HMRC changes is to continue to keep robust detailing of all costs relating to the project or development and maintain records for all transactions necessary.

The R&D scheme is great for innovative and transformative companies, so don’t let this discourage you if you are looking toward a development plan in the future.