Spring Budget 2023—impacts on R&D tax
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The Spring Budget statement took place on 15th March, and contained a few interesting changes to the R&D scheme, both as it stands now and to the changes that were expected to come into force on 1st April 2023.
In general the news was good, with one major change being delayed, and some softening of the reduction in tax credits rates, but there was some disappointment that more of the 1st April 2023 changes weren’t delayed or scrapped.
Here’s our summary of the changes and how they’ll affect how you prepare R&D tax relief claims.
Additional information form
One of the biggest changes ‘announced’ on budget day was a change to the implementation date of HMRC’s additional information form. The requirement to provide additional information in support of claims was first announced last year. HMRC released their draft guidance on what this would include in December 2022, and demonstrated their online additional information form in January 2023. Throughout this period, it was stated that the additional information would be required for claim periods starting on or after 1st April 2023.
However, on budget day this was changed to being required for all claims submitted on or after 1st August 2023. This is a huge change and will impact thousands more claims than expected. Further legislation to support this and the launch of the final additional detail form are expected in the summer. Details of this and the previously announced changes can be found here.
Additional tax relief for R&D intensive companies
The other major announcement was an increase in the tax credit rate for loss-making R&D intensive companies, defined as companies who spend at least 40% of their total expenditure on R&D. The tax credit rate for these companies will be 14.5% compared to 10% for all other claimant companies.
This change applies to any expenditure incurred on or after 1st April 2023, along with the previously announced changes to all other rates of R&D tax relief. However, legislation to support this change will not be published until a later date, so companies entitled to this higher rate of relief will have to either wait to submit claims, or claim at the 10% rate and then amend their claim once the legislation is in place. HMRC have published a factsheet detailing how this change will work.
Delay to the changes to overseas expenditure rules
One very welcome announcement was the delay to the restrictions on overseas expenditure in R&D tax relief claims. These restrictions, which would have prevented companies claiming for the majority of overseas R&D costs, have been delayed until 1st April 2024. This delay gives the government time to consider how these rules would interact with the design of a new merged R&D scheme.
Upcoming changes to R&D tax relief
Taking the above into account, here’s a list of the changes coming into force over the next year or so:
- For R&D expenditure incurred on or after 1st April 2023
- Changes to rates of relief
- For claim periods starting on or after 1st April 2023:
- Advanced notification of intent to make an R&D claim
- Inclusion of pure mathematics as an eligible area of research
- Inclusion of data licencing and cloud computing costs
- For all claims submitted after 1st August 2023:
- Mandatory submission of additional information form
- For claim periods starting on or after 1st April 2024:
- Restrictions to overseas expenditure in R&D claims
How we’re responding to these changes
Here at WhisperClaims, we’re working hard to update our R&D tax claims preparation software to ensure that the claims our users produce are compliant with all upcoming changes.
We’ve expanded our cost categories to include space for data and cloud computing costs, and have added pure mathematics to our list of areas of science. Alongside this, we’re working on adding new questions; features; an output that will make it easy to fill out HMRC’s additional details form; as well as adding new functionality to help users remain compliant with HMRC’s pre-notification requirements.
As always, we’ll continue to keep an eye on legislation to ensure that our users have the best possible experience preparing claims using WhisperClaims!