A guide to UK R&D tax changes - April 2023
Changes to the R&D Tax Credit scheme are here! To help you navigate the changing R&D relief landscape in the UK, we have put together a quick summary of the headline changes likely to impact green-tech startups claiming R&D relief from 1st April 2023 onwards.
SME Relief Changes - For SME eligible projects the enhancement rate on or after 1 April 2023 is decreasing from 130% to 86%.
Tax Relief for R&D-intensive loss-making SMEs:
In the recent budget it was announced that the surrenderable rate (the rate at which you can exchange available losses for an R&D Cash Credit) of 14.5% will still be available for loss-making companies investing at least 40% of their total expenditure into qualifying R&D.
Tax Relief for other SMEs:
For those SMEs who are either profit-making or loss-making but spending less than 40% of their total expenditure on qualifying R&D will see the surrenderable rate available decrease to 10%.
RDEC Relief Changes - The RDEC rate of relief on R&D qualifying costs is increasing from 13% to 20% for expenditure incurred on or after 1 April 2023. This will represent an increase in the available relief for SME companies looking to claim R&D relief on costs financed by awarded grants.
Advanced Notice of R&D Claim - From April 2023, companies will need to notify of an intention to submit a claim in advance to HMRC. This should be done within 6 months of the end of the accounting period to which the R&D claim relates. You will only need to notify if you haven’t made an R&D claim in the previous 3 years or if this is your first time claiming R&D Tax Relief.
Inclusion of Data and Cloud Computing Costs - Good news for innovative software companies! HMRC are now incentivising innovation using modern computational approaches by bringing the costs of datasets and cloud computing within the scope of R&D. This will apply to R&D claims submitted relating to accounting periods starting on or after 1 April 2023.
Submission of a detailed R&D Narrative - HMRC have now made accompanying financial and technical information compulsory. The technical write-up should provide a detailed account of the R&D projects and explain why they are qualifying R&D for tax purposes. Some key areas to include would be the technical advances sought, the technical uncertainties present and the work undertaken to overcome these.
UPDATE! Overseas Subcontractor Restriction - In the March Budget Statement it was announced that plans to restrict subcontracted and Externally Provided Workers (EPWs) R&D expenditure to UK-only has been postponed to 1 April 2024.
For support in optimising your R&D claim, chat to our R&D team.
Words by Joe Sylvester
Joe has a background in R&D tax consulting having worked with high-growth tech startups across sectors to maximise their R&D claims and produce highly accurate submissions to HMRC. Joe also holds the ATT tax designation and has experience working with multinational companies for a big-4. He joined Sustainable Ventures in 2023 where he manages the R&D Tax Credits service.