R&D Tax Credits update: how to prepare for changes to R&D tax relief 2023

We’re back with an update on the recent and upcoming changes to the UK R&D tax credit scheme. In our post in April this year, we covered the changes to qualifying costs, the new requirement to submit online, notify HMRC in advance and the new relief rates for the SME and RDEC schemes.

In this post, we break down the information you need for the new additional information form, explain how the additional tax relief credit works and give an update on the delayed introduction of overseas contractor rules.

We also dig into HMRC’s data to explore which industries have the hardest time getting through HMRC’s review process and lay out some steps to help you improve your claim’s chance of success.

Contents

• Submit the new additional information form before your R&D claim
  – Provide detailed descriptions for each R&D project
  – Information to provide in the project descriptions
• R&D intensive SMEs can claim an enhanced credit worth 27% of R&D spend
• You can still claim for overseas contractors until April 2024
• Most and least challenged R&D claims by industry
• How to improve your R&D claim’s chance of success
• More highlights from HMRC’s R&D claim statistics for 2021/2022
• Expert support for your R&D claim

From August, you need to submit the new additional information form to HMRC before you file an R&D claim

All R&D claimants wanting to submit on or after 1 August 2023 will have to submit an additional information form on HMRC’s website before they submit their R&D claim.

The form asks for the following information:

• Technical information about your R&D projects (the number of projects you need to provide a detailed description for depends on how many projects you include in your claim. See below)
• Financial information relating to your R&D spend during the claim period
• Administrative information, including the name of a ‘senior officer’ of the company who will be responsible for authorising the claim

This form is a new extra step in the R&D tax relief process, not a replacement for any element of the existing R&D claim process. To submit an R&D claim, you still need to:

1. Add your R&D cost information to your corporation tax return (CT600) and computation (or make an amendment if you have already submitted your tax return for the claim period)
2. Attach an R&D technical narrative to your submission, detailing the projects and how the activities undertaken during the claim period qualify for R&D tax relief. This step isn’t mandatory, but it helps mitigate any compliance questions from HMRC.

If you have more than 3 R&D projects, you need to provide a description for at least 50% of your total claim value

The number of projects you need to provide a write up for depends on how many projects you are claiming for in the period.

• 1 to 3 projects: All projects should be written up
• 4 to 10 projects: Minimum of 3 projects should be written up – representing at least 50% of the total R&D claim value
• 11+ projects: Minimum of 3, maximum of 10 – representing at least 50% of the total R&D claim value

Information you need to provide in the project descriptions

Your detailed description of the project must include:

1. A brief description of the field of science or technology that the project relates to
2. A description of the existing level of knowledge or capability in the field of science or technology at the time the project started
3. How your company intended to advance or improve that existing level of knowledge or capability in the industry
4. The technological challenges and uncertainties you faced
5. How your project sought to resolve those uncertainties

Read more about what information you need for your claim on the HMRC site.

When you claim R&D with SeedLegals, our simple workflow will take you through all the information you need to provide. Then, we’ll generate a form that you can use to quickly submit the additional information form to HMRC – with everything clearly laid out, in the right order.

HMRC has introduced ‘Additional tax relief’ worth 27% of total R&D spend

‘R&D intensive’ SMEs will be able to claim an enhanced credit worth £27 for every £100 of R&D spent. To qualify as R&D intensive, your company must spend 40% or more of your total expenditure on R&D – read more about this on gov.uk.

While this is still a reduction on the previous tax benefit of 33% under the SME R&D scheme, this enhanced credit will be a welcome cashflow boost for R&D intensive companies facing rising costs.

💡 What does this mean for your business?

If over 40% of your spend is related to R&D, then you might be eligible for credit worth 27p for every £1 of spend on R&D. If you have received or are receiving grant funding (for example, from Innovate UK) then you might have to claim under the RDEC scheme instead of the SME scheme, which has a different rate.

You can still claim for overseas contractors until April 2024

Expenditure on work subcontracted to outside of the UK was originally going to be ineligible from 1 April 2024.

However, the government has announced that this will be delayed until April 2024. This is good news for businesses who subcontract part of their R&D outside of the UK. Until next year, you can still claim for these costs.

Most and least challenged R&D claims by industry

As we’ve discussed recently in articles and webinars, there’s been a shake up of R&D tax relief in the last 18 months as HMRC sought to reduce the large amount of fraud in the R&D system. HMRC confirmed that this level of fraud is a lot higher than expected, costing the taxpayer an estimated £1.13 billion in 2020/21.

HMRC also provided a breakdown of claims challenged per industry, with a brief summary below of some of the risk areas:

Highlights from HMRC’s R&D claim statistics for 2021/2022

This month, HMRC published a fresh batch of R&D claim statistics for the tax year 2021/22. The most interesting insight as far as we’re concerned is the 11% increase in the value of claims compared to the previous year. This shows that, although HMRC is tightening up its processes to combat fraud, companies claiming legitimate R&D are getting the funds they need to invest in innovation.

Here are our top three takeaways:

• The number of UK R&D claims submissions has increased, and the total value of all claims has risen to £7.6 billion, an increase of 11% from the previous year’s total of £6.8 billion
• Most R&D claims were made by companies registered in the London and South East regions, closely followed by the North West
• The three biggest sectors claiming R&D relief are still Manufacturing, Information & Communication and Professional, Scientific & Technical

Expert support for your R&D claim with SeedLegals

The SeedLegals platform takes the hard work and guesswork out of submitting your R&D claim – with expert support at every step.

With SeedLegals, it’s simple and speedy to:

• Prepare your pre-notification form
• Prepare your R&D additional information form
• Prepare your supporting technical narrative
• Calculate your R&D claim value

Our specialist team of tax advisers, accountants and lawyers will be able to guide you through the application process from start to finish.

Got any questions? Choose a time to talk to a member of the team – we’re happy to help.