Amendments to R&D tax relief rules

The R&D tax relief regulations will undergo a variety of amendments that will take effect for accounting periods starting on or after 1 April 2023. Among these are changes relating to:

• the definition of qualifying expenditure;
• refocusing the reliefs towards innovation in the UK; and
• tackling abuse and improving compliance.

Qualifying expenditure

New categories of qualifying expenditure are being added, so that the cost of cloud computing and datasets used in the R&D, as well as pure mathematics can now be claimed.

A refocus towards the UK

Expenditure on subcontracted R&D has always been part of the SME scheme and large companies using the RDEC scheme have been able to claim for R&D subcontracted to an individual or a qualifying body.  However, except in limited circumstances, for accounting periods commencing on or after 1 April 2023, payments for subcontracted R&D will only qualify for additional relief if the work is carried out in the UK.  The restriction will also apply to externally provided workers, who will need to be paid via a UK payroll if the expenditure is to be included in a claim. There will however be no restriction on claiming for the purchase of consumables for the R&D from overseas.

Tackling abuse and improving compliance

R&D claims will be subject to a number of new requirements, including notifying HMRC of any fresh claims via a digital service within six months of the end of the period to which the claim relates. If the business has already received R&D tax relief in one of the three prior accounting periods, this requirement will not be applicable.

Additionally, the claims themselves will have to be submitted digitally (unless the company is exempt from the requirement to deliver a company tax return online). The claims must be approved by a designated senior official of the company and include a breakdown of the qualifying expenditures, and details of any agent who has advised the company in respect of the claim.

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