First and most important change
If it’s your company’s first-time claiming R&D tax relief and your accounting period starts on or after 1st April 2023, you now need to submit a Claim Notification. If your company has previously claimed but hasn’t made an R&D tax relief claim in any of the previous 3 calendar years, then you will also need to submit a Claim Notification. This means, you must contact us with the first 6 months of your year end, so we can notify HMRC that within that year, there will be R&D carried out. You therefore cannot make an historic claim for R&D from 1st April 2023 unless you have previously claimed.
So, what is R&D
R&D is a collective term for innovative projects that aim to develop new products, services, or processes, as well as enhance existing ones. It is linked with ‘innovation’, and these terms are sometimes interchangeable.
R&D is all about attempting to overcome scientific or technological uncertainty. There may be a problem with no known solution, or a company may wish to develop a product they cannot yet, due to technological limitations.
What are R&D Tax credits
R&D tax credits are an incentive provided by the UK government to encourage companies to undertake innovation and development activities. The relief is based on the R&D costs that your company incurs and can be used to either reduce the amount of tax that your company pays or to receive a cash payment from HMRC.
Currently, SMEs can claim an additional deduction equal to 130% of their qualifying revenue expenditure, meaning that for every £1 spent on qualifying R&D, they get a relief of 43.7p. Loss-making SMEs, who likely won’t benefit from the tax relief if they are unable to carry back losses, can claim a payable credit instead. With the current credit rate for the payable credit set at 14.5%, SMEs obtaining a payable credit receive a tax benefit of 33.35%.
Other Important Changes from 1st April 2023
Coinciding with the increase in the corporation tax rate, the new R&D scheme will take effect from 1st April 2023. For expenditure on or after 1st April 2023:
- The SME additional deduction will decrease from 130% to 86%.
- The SME credit rate will decrease from 14.5% to 10%.
Please contact us if you have any questions or are thinking whether you may be eligible for R&D and we will be more than happy to assist you.
