Snapshot to R&D Tax Relief changes in 2023
Whilst The House of Lords Finance Bill Sub-Committee considers reforms to Research and development (R&D) Tax Relief in the draft Finance Bill 2022-23, ThirdRock provides a timely reminder of the proposed changes to rules surrounding R&D from April next year.
Expand eligible expenditure to include data sets, cloud computing and pure mathematics
Companies will be able to include the costs for purchasing data for R&D projects or using cloud computing services. This will allow companies that pay licence fees to rent cloud storage space in the pursuit of R&D to include these costs in their claims.
Claims can already include costs for applied mathematics in R&D projects but from April this will be extended to include pure mathematics.
Restrictions on claims for overseas costs
An aim of the changes is to refocus R&D incentives for innovation performed in the UK. This means that subcontracted R&D and eternally provided workers (EPWs) will be limited to work undertaken in the UK (or paid through UK payroll). There are proposed exemptions which will be linked to environmental, geographical, legal or regulatory reasons that would otherwise prevent the R&D taking place in the UK.
Cracking down on abuse and improving compliance
It has widely been reported that HMRC has become concerned about potential misuse of the scheme and has allocated more resources to combat abuse. Further measures to counter abuse from April next year include:
· Claims must be made digitally and include categories of qualifying expenditure and narrative of the R&D activities undertaken.
· A named senior company officer must endorse the claim.
· Claims must include details of any agent who has advised the company.
· Companies must notify HMRC of their intention to make a claim within six months of the end of the accounting period to which the claim relates although companies who have made a claim an any of the three previous accounting periods do not need to pre-notify.
There are previously announced measures in the draft Finance Bill and many of the final details of the proposed changes are yet to be determined and may require secondary legislation. Contact ThirdRock to discuss how the changes may affect your companies claim.