Changes are coming to the R&D tax relief schemes in respect of accounting periods beginning after 1 April 2023.  We have known this for a while but have been awaiting more details on what these changes will actually look like.  Now that the draft legislation for the forthcoming Finance Bill 22/23 has been published, we have this detail – assuming nothing changes following the consultation process which ends on 14^th September.

There are quite a few changes planned but the ones likely to cause the most impact are listed below:

Qualifying Expenditure

Additional costs which will be allowable from the above date:

• Costs relating to data licences and cloud computing services (with limitations).
• Costs relating to the new Health and Social Care Levy.

Additional restrictions which will be in place from the above date:

• Costs relating to payments to subcontractors will now be restricted to UK or qualifying overseas expenditure.  Currently, subcontractor costs can be included within an R&D claim regardless of where those activities take place.  Under the new rules, the costs can only be included if the R&D is undertaken in the UK or if the R&D MUST be undertaken outside of the UK because of:
  • geographical, environmental or social conditions
  • legal or regulatory requirements

• Costs relating to payments to Externally Provided Workers will be restricted to only those where the worker or company are taxed through PAYE unless the R&D MUST be undertaken outside of the UK because of:
  • geographical, environmental or social conditions
  • legal or regulatory requirements

***Cost of R&D or availability of workers will not be good enough reasons for R&D to be undertaken outside of the UK***

Claim Notification

Currently, an R&D claim may be made up to 1 year from the tax return statutory filing date (usually 2 years from the end of the accounting period).  This will be changed to 2 years from the end of the accounting period which will make no difference to most companies.  The big difference here is that a company wishing to claim R&D tax relief must notify HMRC of their intent no later than 6 months after the end of the accounting period or they will not be able to make a claim even if they are within the 2-year time limit.  The exception to this is companies which have made an R&D claim within the last 3 accounting periods.

Collection of overpaid R&D tax relief by HMRC

HMRC to have greater powers with regards to collection of overpaid R&D tax relief.

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 21 Jul 2022