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Important updates to the R&D Tax Relief Scheme

by Mel Kanarek

Provided by our partners at Shorts, here are some important things that you need to know if your company is submitting a claim. These follow changes announced by HMRC as part of new tax legislation that takes effect from April 2023.

Back in July, HMRC published details of new tax legislation that is to take effect from April 2023. It aims to extend qualifying expenditure, refocus reliefs towards UK innovation, and counter-act abuse of the scheme.

Shorts Chartered Accountants have highlighted the main changes coming to the rules of the scheme:

  • The scope of qualifying expenditure is to be extended to include costs for purchasing datasets, as well as cloud computing. This will benefit many companies and particularly those in the tech sector. It doesn’t appear that any of these costs can be backdated before 1 April 2023, so it will just be for claims with accounting periods beginning on or after 1 April 2023 where such changes come into effect.
  • Advances in pure mathematics will also now be allowed as qualifying activity as well as the relevant expenditure thereon.
  • Relief for subcontracted work and externally provided workers will be limited to UK activity only (with a few minor exceptions).
  • Claims must be submitted digitally and include a breakdown of costs across qualifying categories, description of the R&D, be endorsed by a Senior Officer at the claimant company and include details of the agent who advised on the claim.
  • There are several minor changes to address some anomalies around companies transitioning between the SME and RDEC schemes and a few other areas that are unlikely to affect you.

Shorts advise that you do your homework on your R&D adviser, ensuring they have the right professional qualifications, conduct claims to a high standard, and can be held accountable if the claim is wrong.

R&D Tax Relief crackdown by HMRC

In the last few months, HMRC has started cracking down heavily on historic and current error-strewn R&D Tax Relief claims. All claims are now at a higher risk of enquiry, so you need to ensure yours are sufficiently robust to pass any inspections that may take place. 

Key things to look out for include:

  • Inconsistencies in a claim or submission of data that does not match HMRC’s own financial records about the business.
  • Signs that a company is claiming for projects which do not meet the BEIS (Department for Business, Energy and Industrial Strategy) definition of R&D.
  • Expenditure that falls outside of the qualifying categories. Even if a project itself qualifies, not all costs associated with the project necessarily will.
  • A change in circumstances of a business, such as a sudden or unexplained increase in spend on R&D activities.

As well as detecting errors, HMRC are also enhancing their ability to enforce the rules, prevent fraud and recover underpaid tax. If errors are found in a claim, HMRC will seek to recover any underpaid tax and consider if a penalty is due.

How Shorts can help

Further information on the changes can be found on the Shorts website:

Finance Bill 22/23 – What does it mean for R&D Tax Reliefs?

HMRC R&D Tax Relief Enquiries – Complete Guide

If you are likely to be affected by these changes, Shorts are offering a free review of your R&D Tax Relief Claim by Darryl Hoy, Technical Director of the Radius team and a former HMRC R&D Tax Relief Inspector. The Radius team at Shorts are specialists in conducting R&D Tax Relief claims and have never had a claim amended by HMRC as a result of an enquiry. Take a look at the Sheffield Digital hub on the Shorts website for more information.