‘Simplification’ of the R&D Tax Credits Scheme
In yet another major change to the R&D tax credits scheme, the Chancellor confirmed that the two existing R&D tax relief schemes will merge with effect for accounting periods from 1st April 2024.
Currently, there are 2 schemes for providing tax relief for qualifying R&D expenditure: enhanced tax relief and payable credits for qualifying SME expenditure; and R&D expenditure credit (RDEC) for all other claims.
For expenditure incurred on or after 1st April 2024, these schemes will be combined.
The new merged scheme will provide relief at the current RDEC rate of 20% aside from loss-making companies and R&D intensive companies.
In the merged scheme, the notional tax rate applied to loss-makers will be the small profit rate of 19%, rather than the 25% main rate currently set in the RDEC.
Since 1st April 2023, R&D-intensive companies have been eligible for enhanced relief (retaining the payable tax credit rate of 14.5% compared to the reduced 10% rate).
R&D intensive companies will also be able to make enhanced claims.
The definition of an R&D intensive company used to be that at least 40% of its overall expenditure qualified for R&D relief. This has now been reduced to 30% along with a year of grace recognising the challenges of identifying R&D intensive companies where the percentage is close to the threshold. The Chancellor claims this policy will benefit an additional 5,000 SMEs.
In another important change, from April 2024, boutique R&D companies will not be allowed to be nominated as the recipient of R&D refunds from HMRC. These payments can only go to the company making the claim itself, who must then pay their R&D agent.
What does this mean for business owners?
Claiming tax credits on R&D should be an attractive proposition for all companies carrying out innovation projects.
But the reality is that despite claiming that they have simplified the system, the R&D tax regime is still very complicated, and SMEs genuinely undertaking eligible R&D do not know how to claim or if they’re eligible to claim tax credit.
And once a claim is made, there are often legitimate concerns about whether the claim complies with HMRC’s new, stricter rules.
It’s also true that HMRC have launched a crackdown on fraudulent claims and on dubious agents operating in the R&D tax credits reclaim space.
And finally, because the changes are coming into force in April 2024, businesses have been given very little chance to adapt to the changes.
The Institute of Chartered Accountants in England and Wales (ICAEW) through whom we are regulated have already said that “There is insufficient time for companies to get to grips with the new rules, especially SMEs who are unlikely to have any dedicated in-house tax resource.”
So let’s make it simple.
If your business is planning an innovation project or carrying out innovative projects and you’re unsure if you can make an R&D tax credit claim, arrange a free consultation with one of our R&D tax credits experts.
How Leonherman can support your R&D tax credits claim
Having an R&D claim reviewed or challenged can create significant costs and delay for a business. In our experience, this is far more likely if your claim has been compiled by questionable R&D expert.
In contrast, here’s how Leonherman can help you to reduce the risk to your business:
1. We will meet with you to help you better understand what work aspects can and cannot be considered towards a claim for R&D Tax Credits;
2. We will ensure the work that you will be putting forward for a claim is structured accordingly into the relevant process elements of R&D, to ensure that the maximum potential claim value can be harnessed;
3. We will ensure your research is well documented in a manner that supports a review of the research by HMRC should they deem it necessary;
4. We will help you to engage legal advice, to ensure contracts with third parties, be they clients or subcontractors, enshrine the ownership of the research with you, the claimant;
5. As a regulated, independent specialist, we will compile your R&D claim, report and HMRC AIF, maximise the claim value and ensure key HMRC tests for any valid claim are met.
Arrange a free consultation with an R&D expert
Leonherman have a significant understanding of the R&D tax credits scheme.
Crucially, we are an independent specialist, regulated by the ICAEW, and we are used to operating under regulatory scrutiny. We have always been expected to put our name alongside our advisory work.
If you’re considering an innovation project in your business, and you’re unsure as to whether you will have a valid R&D claim or not, get in touch with us without delay to arrange an initial, free consultation with our R&D experts.
We will help you better understand what constitutes a valid claim for R&D tax credits with HMRC. We will let you know if we think you will have a valid claim, and importantly, we will tell you if we think you don’t have a valid claim and whether we feel it’s worth your time putting forward a claim or not.
What’s more, our wider financial advisory team will support you beyond the initial R&D claim, helping you to make R&D a key driver of your business value and growth strategy moving forward.
Book a free consultation with an R&D tax specialist here, call us on 0161 249 5040, or email: email@example.com.
The Autumn Statement 2023 – Contact Leonherman’s Accounting and Tax Experts
For more information about the key announcements made in the Autumn Statement 2023, read this summary of the key points by Leonherman’s accounting and tax experts and download this guide to each of the announcements.
If you have a question about any of the measures announced by the Chancellor in The Autumn Statement around how they might affect you or your business, please get in touch with us and we would be happy to help.
Call us on 0161 249 5040 or email: firstname.lastname@example.org
This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.