Getting ready for April 2023—what you need to know about the changes to R&D tax relief
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As we’ve written about before, the government and HMRC will be introducing some fairly major changes to the R&D tax relief schemes in April 2023. While most of these changes will be enforced for accounting periods starting on or after the 1st April 2023, it pays to know what is coming and what you need to do now to make sure you remain compliant with HMRC’s guidance. In addition, a subset of the changes will simply require all R&D tax advisors to work to current best practice, and should be adopted as soon as possible.
Here’s our guide to the upcoming changes and what you need to do to make sure you’re ready!
Cloud computing and mathematical advances
Cloud computing and data costs, as well as the costs associated with making advances in pure mathematics, will be allowable expenses for claims starting after 1st April 2023. This is a fairly simple change, and should be easy to prepare for.
- Taking some time to understand exactly what data and cloud computing costs will be allowed, and what an advance in mathematics would look like;
- Alerting your clients who are active in this area to start tracking their R&D-related data and cloud computing costs for their accounting period starting after 1st April 2023
- Updating your processes to ensure these costs are captured.
To make this easier for our users, WhisperClaims will be updating the guidance within our app to make it clear what costs can be included.
Overseas subcontractor and EPW costs (changes delayed until 1st April 2024)
Conversely, payments made to overseas subcontractors and overseas externally provided workers (who are not taxed through UK PAYE) will no longer be allowable costs for accounting periods starting after 1st April 2024. There is an exemption for subcontracted work that has to be undertaken overseas because the required ‘geographical, environmental or social conditions are not present or replicable in the UK’, but this is unlikely to apply to the majority of subcontracted work that is currently claimed.
In some ways this is a more complicated change, but preparing for it should be fairly straightforward.
- Taking some time to understand the exemptions to the new rules, to ensure you claim as much of your client’s subcontracting costs as possible;
- Talking to your clients about this change, so that they can:
- Make sure that they record the location and reason for using their subcontractors in future and;
- Make informed decisions about which subcontractors to work with on the R&D, on the basis of how working with UK or overseas subcontractors will affect the tax benefit from an R&D tax relief claim.
- Update your processes to ensure that only allowable costs are captured.
To make this change easier for our users, WhisperClaims will be updating the in-app guidance for both EPWs and subcontractors to make it clear which costs are allowable, and adding in more checks to ensure that only allowable costs are claimed.
From April 1st 2023, all corporation tax returns, including amended returns, will have to be submitted digitally – postal returns will no longer be accepted. This has been the case for most corporation tax returns for some time now, so no changes should be needed for the majority of agents.
Provision of additional information
From April 1st 2023, HMRC will have the power to make regulations setting out additional information to be provided for all R&D claims. This will include, for the first time, a requirement to provide details of the R&D undertaken and a breakdown of the costs, as well as the details of any agents who have worked on the claim. Claims will also have to be signed off by a senior officer of the company.
This section of the new legislation is still lacking detail as to what exact information HMRC will require and in what format. However, all these requirements can be seen as enforcing what was already considered best practice in R&D tax relief and shouldn’t therefore require most advisors to make major changes to their processes.
Between now and April 2023, WhisperClaims will be implementing several changes to make this easier for our users. Our reports should already provide the technical and cost information that HMRC will require. In addition, the name of the agent and company that prepared the claim will be added to the report cover page, and we’ll be working to enable users to send reports for signing through the app.
Pre-notification of claims
For claim periods starting after 1st April 2023, HMRC will require companies that have not claimed R&D tax relief within the last three years to notify HMRC within six months of the end of the accounting period that they intend to make a claim for R&D tax relief. Again, the detail of what form this pre-notification will take and what information will be required is yet to be announced, but advisors will need to ensure that they have developed processes to be implemented after 1st April that ensure that pre-notifications are submitted for all relevant companies.
At WhisperClaims we’ll be keeping a close eye on what HMRC require for pre-notification and developing any additional features that are required to help our users with this part of the claim process.
In the meantime, we’re adding in a question to make sure that notifications have been given where required to prevent any users preparing claims that will not be accepted by HMRC.
How to prepare legitimate R&D tax claims for your Clients & HMRC
Watch our webinar recording to learn about the common mistakes and issues that arise when making claims, when are claims likely to fail and what you can do to optimise your claims preparation process.