August 15, 2022

R&D tax relief is changing – How do we keep your claims safe?

Here are some highlights to help our clients and partners understand how this legislation will affect them and the measures Bonham & Brook would recommend to any affected companies.

Focusing on innovation within the UK

  • Subcontractors and EPWs are only allowed if they were incurred within the UK.
  • Research that requires factors not present in the UK (e.g. tropical weather research) or certain activities that can only be conducted in specific locations are exempt
  • An exemption is not applicable for reasons of cost of R&D or the availability of workers for R&D.

How to Prepare

This is going to be enormously important for our software and IT Clients, ultimately there is no easy fix. It is vital that your finance department is aware of the implications of any reduction and analyses its impact on cash flow. Once this process has been carried out, the business can make decisions as to whether it would be advantageous to utilise UK Based R&D partners instead of off-shoring.

Previously ineligible costs that are now eligible

  • Cloud computing and data licensing costs
  • Data storage, operating systems, software platforms, and hardware facilities are all included in this.
  • Pure mathematics-related expenditure.
  • In addition to NI Contributions, the Health and Social Care Levy is going to be reflected in staffing costs.

How to prepare

Begin to document anything that falls into the above categories, whilst only periods following March 2023 will be eligible it’s best to get processes embedded early.

Pre-notification procedure

HMRC must be notified six months before the end of the period to which the claim pertains. Their intention is to make a claim via a digital service. 

No pre-notification is required if the company has claimed during one of the previous three periods.

  • This would have prevented perceived abuse of R&D schemes by limiting spurious claims to one accounting period. We have only increased the administrative burden for legitimate claims by not requiring pre-notification for companies that have only claimed in one of the preceding three periods. 

There was always a suggestion of pre-notification but we don’t know whether it will have the intended effect.

How to prepare?

For those of you already claiming with us, this shouldn’t be an issue as HMRC is already aware that you will likely be claiming going forward. For those considering claiming, going forward it’ll be important that they realise prior years will be ineligible after 2023.

Submission of a claim

  • In addition to a breakdown of costs, digital claims must include a brief description of R&D.
  • Claims should include details of any agent who assisted the company with the compilation of the claim. It is also required that claims be endorsed/signed off by a designated senior officer.

How to prepare?

It’s important to leave sufficient time to submit your claim, i.e. no waiting until the last day of your financial period and stressing your accountant out on the last day! Previously such a scenario could be alleviated by a manual submission, but this will no longer be the case. Ample time should be allowed to minimize the risk of missing your claim due to poor time management. 

When will the changes be implemented?

  • These amendments are expected to affect claims made in respect of accounting periods beginning on or after 1st April 2023.
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