Chancellor Jeremy Hunt announced a partial reversal to the Small and Medium-Sized Enterprises (SME) Research & Development (R&D) tax credit cuts in the recent Spring Budget after facing months of pressure.
Startups had warned that the cuts, first announced in November 2022 via the Autumn Statement, would hinder growth for early-stage and research-intensive tech companies.
The R&D tax credits and relief scheme was already attracting criticism because of suspected fraud and general abuse of the initiative.
The autumn reforms to the R&D scheme became effective from April 2023. The key points include:
- R&D costs which can be claimed are reduced from 230 per cent to 86 per cent of qualifying expenditure.
- The available cash credit rate, which is for R&D tax losses that are surrendered for a cash rebate, is reduced to 10 per cent from 14.5 per cent.
For larger businesses, the Research and Development Expenditure Credit (RDEC) rate was increased from 13 per cent to 20 per cent.
The previously announced reduction will remain in place, but loss-making “R&D-intensive” startups will receive a top-up. Those that spend 40 per cent or more of their total expenditure on R&D will be able to claim a tax credit of 27 per cent, or £27 for every £100 spent.
The inclusion of some overseas expenditure in R&D tax relief claims is deferred for a year until 1 April 2024, to allow the Government to consider the interaction of this with a potential merged R&D relief scheme.
Two new categories of qualifying R&D expenditure will be created, for datasets and cloud computing costs.
It has also been announced that all R&D claims submitted from 1 August 2023 onwards will need to be filed using the new digital forms, regardless of the accounting period concerned.
There is a new requirement for companies who have not made an R&D claim in the previous three years to notify HMRC that they intend to make a claim. This notification also needs to be made digitally within six months of the end of the accounting period to which the claim relates.
How to claim R&D relief
Subject to the above, you can claim the relief up to two years after the accounting period it relates to, by treating it as a deduction from the company’s profits for the accounting period. The claim must be made in the company tax return or an amendment to the return.
You must send:
- A full Company Tax Return form (CT600)
- A completed tax computation
- Add the form CT600L, if claiming a payable tax credit or Research and Development Expenditure Credit.
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